If you are a Bitcoin miner, you may have heard of the term called Bitcoin halving. It is a process that occurs after a set number of blocks are mined.
Bitcoin halving affects the investors, miners and the whole Bitcoin ecosystem. Let's discuss it in detail.
Bitcoin halving
Bitcoin halving is an event in which block rewards for mining Bitcoins are cut in half. This happens after the mining of every 210,000 blocks or roughly four years. This way, Bitcoin enforces artificial price inflation to ensure a steady rise in its value. This process will continue until miners completely mine the 21 million Bitcoins on this blockchain.
The last Bitcoin halving event took place on 11 May 2020. The current reward for mining a Bitcoin block is 6.25 BTC.
Besides miners getting lower block rewards, the rate at which new Bitcoins enter circulation also reduces. This, in turn, inflates its price as its demand increases due to the lower amount of new supply.
Generally, a huge crash always follows a price rise, but the value of Bitcoin after the crash is certainly more than the value of this crypto coin before the halving event.
For example, after the halving of 2016, in 2017-2018, Bitcoin’s value rose to $20,000. Like any rise in the market, it is followed by a crash, bringing down its value to $3,200. It may seem like a heavy crash, but before halving, Bitcoin’s value was at $650, increasing its value.
Effects of Bitcoin halving
Bitcoin halving has a chain effect. All individuals related to the currency, namely its miners and investors, are affected.
As the mining rewards per block halves, the supply of new coins becomes less. As a result, the price of each coin increases. The reward for miners may be less than before, but the increase in the coin's value makes up for it. Also, for miners, Bitcoin halving can lead to the consolidation of their ranks as individual miners.
If Bitcoin halving does not cause a rise in demand and value, the blockchain will reduce the mining difficulty on the network. This will make it easier for the miners to validate a block. Though block rewards are still low, the number of blocks miners can find will increase, keeping them in profit.
However, there is a catch. Reducing block rewards makes mining difficult for individuals and small mining pools. Large corporate companies are mining Bitcoins 24/7, and competing with them can be very costly.
According to experts, Bitcoin’s mining capacity is counter-cyclical to its price. As its price increases, the total number of miners diminishes and vice versa. A 51% attack is always probable after a Bitcoin halving as many miners move out of this network.
For investors, a Bitcoin halving event is always good news. The anticipation of a halving event always increases trading activities on exchanges. Take note that the rate at which the price of Bitcoin will increase after the halving is based on several market factors.
Bitcoin halving value over time
Upon its release, Bitcoin had a block reward of 50 Bitcoins. Its first halving occurred in 2013, and the block rewards went down to 25. In 2016, rewards fell to 12.5; after 2020, its current reward is 6.25. The next expected halving should occur in 2024, and its estimated block reward value will be 3.125 Bitcoins.
The value of Bitcoins has risen after every halving and held a price that was higher than the one before the event. Before the 2012 halving, the value of Bitcoins was around $11. Due to the halving, it rose a hundred times within a year. During the second halving of July 2016, Bitcoin’s value fluctuated from around $500 to $1,000 for a few months and reached a high of $20,000 by the end of December 2017. After the May 2020 halving, Bitcoin had a bull run and climbed from $9,000 to $30,000.
The future of Bitcoin mining
One question that always bugs miners is what will happen after all the blocks on the Bitcoin blockchain are mined. Will mining come to an end?
The simple answer is no. Bitcoin is a blockchain that works on the Proof-of-Work (PoW) consensus. Miners can validate blocks by solving critical mathematical problems and validating transactions. This removes the need for any third party to validate transactions, and miners also gain new coins in the process as rewards.
This reward is justified as miners must invest a lot of time and money in this process. Plus, there is intense competition from other miners that need to be taken into account. Miners use powerful ASIC computers that go through trillions of hashes per second to find the right hash to validate a block on the network.
The intense competition also ensures that any particular miner cannot pull off a 51% attack by gaining excessive control on a blockchain.
Thus, mining is a very necessary activity on a blockchain that works on the PoW mechanism. After mining all Bitcoin blocks is complete, miners will still be responsible for validating transactions. Furthermore, they will get transaction fees as their rewards. This way, miners can still act as validators of the transactions occurring on the network.
This system of reward for mining will go on at least till 2140 when the set limit of 21 million BTC is reached.
If you are currently a Bitcoin miner or thinking of mining this cryptocurrency, then Bitcoin halving will give you numerous opportunities to earn a profit. You can always hold your newly minted coins till the price appreciates and reaches a higher level. Alternatively, you can also stake them on an exchange platform to provide liquidity to other traders.
