With just 86 Days left for the 4-year-long event to occur, the question remains– what are the possible outcomes of the halving?
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Why Bitcoin Halving?
Bitcoin halving occurs as part of the protocol’s design and is a key mechanism to control the supply of new Bitcoin entering circulation.
So, how does the Bitcoin halving cycle work? Miners were paid 50 BTC per block when the cryptocurrency was originally established. Early users could be enticed to mine the network in this fashion, even before it was evident how successful it would be. The rate at which new Bitcoin is created decreases by half for every 210,000 blocks mined — roughly every four years.
Implications of the halving event
In terms of the halving’s broader implications, a lower reward for mining Bitcoin will reduce the amount of money miners may make by adding new transactions to the blockchain. Miner rewards determine the flow of new Bitcoin into circulation.
As a result, halving these payments reduces the influx of new Bitcoin — bringing demand and supply economics into play. While supply drops, demand fluctuates and the price changes.
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Bitcoin’s inflation rate is also reduced due to the halving event. In crypto, inflation relates to new coins being introduced to the circulating supply. However, Bitcoin is designed to be deflationary, and the halving plays a crucial role in its design.
Bitcoin’s inflation rate was 50% in 2011, plummeting to 12% after the 2012 halving and 4–5% in 2016. Currently, Bitcoin has a 1.74% inflation rate. In simple terms, after each halving, the value of Bitcoin increases. Every halving event has historically resulted in a bull run for Bitcoin. The price rises as supply decreases, causing demand to rise. This upward tendency, however, is usually not immediate.
Impact On Price
In the past, Bitcoin price rises have frequently been linked to halving events. Positive market sentiment and probable price appreciation have resulted from the expectation of decreased supply and rising demand.
However, it is crucial to remember that past performance does not guarantee future results and that factors other than halving events affect Bitcoin’s price.
Impact on miners
Since the mining rewards are now substantially reduced, miners have to compete vigorously to get a share from mining rewards.
Because of the high cost of electricity used to power the computers that solve the mathematical puzzles, the price of BTC would have to rise significantly for miners to stay profitable despiste losing half of their potential earnings. Miners will find it challenging to stay competitive if the price does not rise in tandem with the decline in reward.
Miners will need to be as efficient as possible; therefore, a new technology that can generate more hashes per second while consuming less energy and lowering overheads will be in demand
About The Author
Tony Chimdiuto