We explain Bitcoin's amateurish halving phenomenon. Halving or halving the reward for Bitcoin Mining is a programmed reduction in the number of new BTCs that receive miners for adding new blocks to the block of the largest cryptographic currency.
Imagine a bowl and crane. The bowl represents the number of Bitcoins that have already been mined and are in circulation. As of February 29, 2020, the total Bitcoin supply is 18,244,039 BTC coins. The faucet represents the new Bitcoins, which are mined right now and merged into the bowl.
Over time, the pressure of the crane decreases. This is roughly how the halving of the Bitcoin is described. The pressure decreases every 4 years until it eventually dries up over the next century. That is, the new Bitcoins will no longer be mined and put into circulation. Whatever is in the bowl at that time will represent 21 million Bitcoins - that's the number programmed by the mysterious Satoshi Nakamoto in Bitcoin's whitepaper.
The technical component of Bitcoin's halving...
Source: Unsplash
When Nakamoto launched Bitcoin in 2009, he devised a decentralized model where Bitcoins could be distributed without the involvement of any individual or centralized group. The innovative idea behind Bitcoin's mining was to reward BTC for successfully creating new blocks by checking transactions and finding mathematical solutions.
To determine how these new BTCs will be distributed among the miners, Satoshi Nakamoto put certain rules into the Bitcoin protocol. The first rule was that Bitcoin would have a limited stock of 21 million coins in history. The second rule was that every time another 210,000 blocks were mined at Bitcoin, the reward was halved. This procedure will be repeated until all 21 million coins are in circulation.
It is this procedure that was named «halving ».
When the whole system just started to work, and only the most shoddy geeks began to learn about Bitcoin, the miners received 50 BTC for each produced block. The first decrease in remuneration occurred in 2012 - then the amount decreased from 50 to 25 BTC. The second halving took place in the middle of 2016, on block number 420 001. Since then, the miners have received 12.5 bitcoins every 10 minutes. When the next queue of 210,000 blocks is completed, there will be another drawdown. Then there's another one. And the full production of new Bitcoins is expected to stop in 2140.
Why is Bitcoin's offer limited?
The key question here is why the total number of BTCs was limited from the very beginning, and why was this reduction of fees invented? Simply put, it's all about the law of supply and demand. If the supply of Bitcoin was unlimited, and it was generated in large quantities every 10 minutes without any reduction, then too many Bitcoins would be in circulation too soon. This, understandably, would have an extremely negative impact on its market value.
This can be seen in the example of fiat currencies that have unlimited supply, because central banks can print as many as they want. This is a major mistake and a problem with traditional fiat currencies. The central bank prints currencies more than necessary, and according to the law of supply and demand, its value is reduced. Its purchasing power is also declining. That is, over time, you can buy much less goods for the same amount of money. In economic theory, this phenomenon is called inflation.
The queue for bread at sunset of the USSR. Source of image: Livejournal
Satoshi Nakamoto created Bitcoin with the inflationary disease of fiat currencies in mind. In fact, Bitcoin's mechanism of operation is kind of like gold. The earth's stock of gold is limited, it was only easy to mine at the beginning of history. But as time went by, it became harder and harder to mine, as we had to drill deeper and deeper into the earth. Since the earth's gold reserves are limited, it has been able to retain its value for the last 6,000 years. That's why Nakamoto made Bitcoin look like gold, limiting its supply, giving it a stock of value and making it harder to mine as more and more coins appear in the world. The goal was for Bitcoin to be able to maintain its value in the same way for years to come.
What will be the impact of Bitcoin's next halving in 2020?
If you study the history of the BTC price chart, you can see that the price of the largest cryptographic currency is constantly increasing over the years. So is the price of gold. And one of the interesting observations is that the rise in price has accelerated before or after each previous halving (reduction of remuneration for mining). There were already 2 of them, and after each of them the price of Bitcoin broke through another historical maximum.
Previous Bitcoin halvings in 2012 and 2016. Source: Bytwork
A third reduction in remuneration for mining is expected in May 2020. If this time Bitcoin repeats the price pattern of the previous two halves, in theory its price may rise to $11-16 thousand. Moreover, by December 2020 or in early 2021 the price of the largest cryptovolta may reach $19 thousand or even exceed another historical maximum.
However, keep in mind that this is only an assumption or even a wish of some analysts. This is not a financial advice, you can invest in the crypt currency at your own risk. And always remember that you can invest as much as you can afford to lose. The crypt market is a very unpredictable and high-risk industry.
Comments
Post a Comment