Halving is a reduction in rewards for crypto coins mining. The most famous case of crypto Halving is Bitcoin Halving, which is also often associated with an increase in its value against fiat currencies, considering that Halving is basically reducing the supply of crypto currencies.
Bitcoin has a decentralized nature which means that there is no central authority that controls its supply. Satoshi Nakamoto designed the Bitcoin mining process to be similar to gold extraction, which was carried out with the view that the amount of gold was limited, so that the level of supply would decrease over time.
The number of Bitcoins in circulation will continue to grow to a maximum limit of 21 million. But to ensure supply control, the rules in Bitcoin are designed to gradually reduce miner’s rewards every four years. This benefit will be split into halves until a total of 21 million Bitcoins are circulating on the market. Thus, this system can act as an anchor to ensure the value of Bitcoin continues to rise. The theory in the chart above states that changes in the Supply level produce a proportional change in the value of Bitcoin. Therefore, a reduction in the level of coins in circulation for Bitcoin must lead to a proportional reduction. If we assume in terms of simple requests and offers, it might be clear that the price of Bitcoin will continue to rise after Halving occurs. According to research conducted in 2012, 78 percent of Bitcoin will not be circulated but will only be stored by its users. The fact that now emerges is, 75 percent of all Bitcoin has been mined and this can make people more interested in saving Bitcoin than using it as a means of payment. Moreover, there is an Altcoin option as a means to spend their money, so it’s only natural that Bitcoin owners will only use this crypto as an investment tool.
The Footprint of Bitcoin Halving
Until this article was written in April 2019, Halving in the Bitcoin block only happened twice, namely on November 28, 2012 and July 9, 2016. In the first Halving, miners’ fees fell from 50 BTC per block to 25 BTC per block.
While on the second Halving, the process was carried out on mining 420,000 blocks on the Bitcoin Blockchain, with miners’ rewards being reduced from 25 BTC per block to 12.5 BTC per block. That halving also means that the number of new Bitcoins printed every day is reduced. As of July 9, 2016, the release of coins per day has fallen from 3,600 BTC to 1,800 BTC per day.
According to data from bitcoinblockhalf [dot] com, the next halving will occur on May 24, 2020, with a reduction in reward from 12.5 BTC per block to only 6.25 BTC per block.
The Satoshi Way to Combat Inflation
The idea behind Halving that is done regularly is to ensure that Bitcoin does not experience a reduction in value from time to time. Satoshi Nakamoto explained the process in a statement that follows:
“The fact that new coins are produced means that the money supply increases according to the planned amount … if the money supply increases while the number of users increases at the same rate, prices will remain stable. But if Bitcoin supply does not increase as fast as demand, then the value Bitcoin will continue to grow. “
To encourage sustainable growth, Satoshi chose a logarithmic scale in setting the Halving date. This means that although 80 percent of Bitcoin supply has been mined in the first 10 years, the last Bitcoin will not be released until 2140. Thus, miners still have more than a century to get guaranteed incentives for their participation in the network.
Side Effects Of Bitcoin Halving
The negative side of Bitcoin Halving is: many miners will stop their operations because the rewards are diminishing. Giving fewer rewards will make more miners lose money and move to other cryptocurrency. This will directly reduce the Hash rate on the Bitcoin network, which then affects the user’s transaction speed.
Marco Streng, co-founder of Genesis Mining, gave a price of $ 200 to produce one BTC on the first Halving. After the second halving took place, the price rose to around $ 400. Because the costs incurred have not yet made a profit, large miners will certainly continue to maintain operations despite lower revenues. Meanwhile, the number of inefficient small miners will decrease, because they do not benefit after the next Halving occurs.
What is the Price of Bitcoin After Halving 2020?
Since there was no major Hash reduction during the first and second halvings, we can assume that the big miners will still be ready to mine Bitcoin even though the rewards they get are reduced by 50%. These miners are pinning their hopes on the rise in the price of Bitcoin as happened in the two previous Halvings.
It should be noted that the second Bitcoin Halving has taken place during an impressive upward trend in prices, and the bullish rally only ended at the end of 2017. Reflecting from this experience, the third Halving that will occur in 2020 will most likely still result in a rise in Bitcoin prices, the Large miners will stay afloat, and the speed of the Bitcoin network doesn’t decrease too dramatically.
In daily movements, the price of Bitcoin is not only influenced by Supply, but also by market sentiment that affects Demand and technical analysis of historical price movements. More information about this can be found in the Analysis Guide for Bitcoin Trading.