The 3rd Bitcoin Halving just got over, a few days back where the block reward reduced by half, from 12.5 BTC to 6.25 BTC. The crypto space was filled with hysteria, as prior to the halving process, Bitcoin touched the 10,000 USD mark. This phenomenon happens every four years after mining of 210,000 blocks, wherein the number of BTC generated rewards to the miners will be halved. Bitcoin halvings that have happened before always displayed far-reaching heights, hence the same is expected of the upcoming one.
To put it simply, the miners add new blocks of information to a database known as “public ledger”, wherein they get rewarded for their efforts to maintain and monitor the network of transactions. The miners would rely on fees as the BTC block reward decreases, as that helps them with the incentive for verification of transactions. The miners are the ones who would get mostly affected by the Bitcoin halving event.
Bitcoin Halving is the phenomenon by which the miner reward keep on halving, or decrease by 50% after every four years, which happens after mining 210,000 blocks. Satoshi, the creator of Bitcoin wanted to create a system that would be self-sustaining, similar to gold mining. So, in order to control supply, he came up with the method of Bitcoin halving.
On November 28, 2012, on the production of 210,001 blocks, the mining rewards dipped from 50 BTC to 25 BTC. After a year or so, the Bitcoin price smashed to 1000 USD. As the market is ready and knows beforehand about the event, the impact on price is bound to be negligible, and hence will start applying the reduction rate to the price gradually.
On July 9, 2016, the second Bitcoin halving took place, with an all-time surge of around $19,000, which reached 20,000 USD by December 2017. Before the 2016 halving, the BTC price fell as low as 200 dollars per coin and the mining reward dipped from 25 BTC to 12.5 BTC. But right after the halving took price, the price started rising exponentially.
2020 is most likely to see a similar change for the Bitcoin price, where the miner fee is going to be halved from 12.5 to 6.25. It is going to take place on May 27th, 2020. The crypto enthusiasts have participated on twitter saying they believe that the Bitcoin price will be skyrocketing during the BTC halving stage. To be precise, 61% of 2500 accounts believe that the price will soar from now until the halving, while 25% believe that the price increases will come after the halving.
Previous two BTC halving has marked the beginning of a dominant bullish run. It is similarly estimated for BTC to surge as high as 50,000 USD, which can fluctuate upwards anytime. Halvings are good only when it’s about inflation control. The cryptocurrency is vouched for sustainable growth in the years to come by incentivizing the miners so they get the motivation to remain engaged in the network for a longer period of time.
Every halving reduces Bitcoin’s inflation rate, slowing the movement towards the ceiling of 21 million, and at the same time reducing the selling pressure from the miners. With the halving in 2020, the transition from a slightly inflationary to deflationary one will take place. It has been observed that the price spikes have been less extreme with each and every event, both percentage-wise and in the amount of time before a new high was reached.
The miners are the most impacted set of people, but if the Bitcoin price increases, the negative impact would decrease to some extent. On the other hand, a substantial hit to the mining revenue might cause the miners to stop contributing to Bitcoin’s Proof of work mechanism. After the reward reduction, there might be roll off of hash rate and the less profitable machines would be replaced with the better ones.
Obviously, the users also get affected in this procedure, especially at this juncture when the users fear of delayed transactions and worrisome fee recommendations.
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