What is Bitcoin Halving?
Bitcoin is a deflationary currency and every 210,000 blocks, approximately every 4 years, the Bitcoin block mining rewards are reduced and cut in half. 50% fewer Bitcoins get generated with the creation of each new block. The estimated date for the next Bitcoin Halving event is on 11 May 2020.
This is a programmed functionality within the Bitcoin protocol and it has already happened twice in the past, increasing the value of Bitcoin by up to 100 times.
Previous Bitcoin Halvings
The first Bitcoin Halving took place in 2012.
At that time, the block reward was set at 50 BTC for each newly mined block. Approximately every 10 minutes a miner was awarded 50 Bitcoins.
From block 210,001 the rewards were halved to 25 BTC per block.
At the time of the halving, Bitcoin was trading at around $11. Just one year later Bitcoin skyrocketed to over $1.000.
The second Bitcoin Halving happened in 2016.
This time the block rewards were reduced from 25 to 12.5 BTC per block, starting with block number 420,001.
Bitcoin was trading between $600 – 700 before reaching its all-time highs of $20.000 in the Bullrun of 2017.
The third Bitcoin Halving in May 2020
Taking into consideration historical Bitcoin movements following previous halving events, many experts agree that Bitcoin could reach at least a $100.000 price tag in 2021.
Kraken CEO, Jesse Powell is one of those experts. He doesn’t rule out a price spike to $1m.
With current prices hanging around the $9.000 region, such a price assessment could even be considered to be pessimistic since it shows a rise of only 11 – 12 x (compared to 30 – 100 x in the past).
If you are interested in purchasing Bitcoin but you are not sure which exchange to use, KryptoVergleich has compiled a list of some trustworthy ones.
What causes Bitcoin’s rise in value?
It is simple. Supply & Demand. Bitcoin’s supply is limited to 21 million. Compared to other cryptocurrencies and especially to fiat, Bitcoin is a rare asset. A scarce asset with a constant market demand has more value. In contrast to that, If Bitcoin had an unlimited supply and 50 Bitcoins were created every 10 minutes, eventually Bitcoin would have very little value since there is too much of it.
Bitcoin’s market dominance is over 63% which means that Bitcoin is more popular compared to all other 5.000 cryptocurrencies combined. If that demand remains, or increases, the laws of supply & demand will drive the price to new all-time highs.
In the past, it was possible to mine Bitcoin with just a PC. This doesn’t work today. Specialized and expensive equipment (like ASIC miners) is now needed to mine profitably.
More miners = bigger chances of solving the cryptographic puzzle and being awarded the block reward.
With the next halving event just around the corner, miners who don’t find it profitable anymore will stop mining. Those who decide to continue will only sell their Bitcoins at more profitable rates. Taking into consideration the reduced block rewards, the cost of electricity and mining equipment, combined with increased mining difficulty, miners can’t sell their bitcoins at current rates and remain profitable. This will drive Bitcoin’s price up.
The rise of Mining Pools
Not everyone can afford big investments in mining equipment. Miners are now turning to mining pools where they combine their computational power and share the awarded block rewards depending on how much power each miner has dedicated to the pool.
Reasons to be optimistic
Bitcoin investors need patience. After the previous halvings, Bitcoin has always reached new highs. This has never happened in the days or weeks before or immediately after the halving. It has always taken a few months and up to a year after the event.
Rekt Capital has written a detailed article about everything you need to know about Bitcoin Halving. I suggest everyone read it.
The most important part that I think everyone needs to remember is not to be fooled by what they call the pre-halving “shake-out”.
Many investors have in the past sold their Bitcoin in the days leading to the halving event, or immediately after, because they didn’t immediately see the positive market movements they expected. This resulted in price drops which in return resulted in even bigger selling walls due to a fear of losing value.
Keep your patience and know that history repeats itself. Your rewards will be waiting for you not in May 2020 but 2021.
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