Updated: May 19, 2020
The Bitcoin "halving" — or "halvening" — as it's dramatically referred to, is one of the most talked about events in the cryptocurrency space. Though not everyone knows what it is or how it will impact their personal crypto stash.
Let's demystify it.
The bitcoin halving is an event that occurs every 4 years. It means the bitcoin reward miners receive for validating the blockchain gets cut in half. It will drop to 6.25 from 12.5 bitcoin sometime around May 18.
Here are THREE THINGS you MUST know about the Halving.
Supply and Demand: Many people in the space, believe the halving will decrease the overall supply and eventually pave the way for a price rally. Logically, it makes sense that if demand for bitcoin grows and the supply dwindles, the price would skyrocket. However, don't get overly enthusiastic about that prospect. Many savvy investors know the halving is coming; therefore, they have ample time to prepare and thus increase their holdings in advance. In this way, the price maintains itself over time...although it's still possible the price could continue to rise as a result, albeit more gradually. A Coindesk article echoed the aforesaid sentiment, "Others argue that given the predictability of bitcoin’s halving schedule, this change in the minting rate is unlikely to shift the price. Traders have long known the bitcoin block reward will decrease, giving them ample time to prepare." But halving or no halving, we should never be so audacious as to believe we can see the future. Oftentimes, people using crystal balls in this ecosystem end up with faulty or outright impossible prognostications.
Effects on Mining: The other consideration about the halving is negative; it has some bitcoiners concerned. This camp believes if mining gets too difficult, it will push many miners out of doing their work. It's true that if no one mines, the network will collapse. Miners ultimately do the work to process transactions and maintain a scaffolding of security. Without them, the whole system breaks apart and unravels, destroying years of accumulated value. Not too worry too much. As I mentioned, no one knows the future. The above scenario is a possibility, but the creator of Bitcoin, Satoshi Nakamoto, suggested that this is not a problem. In the long term, transaction fees for mining could go up and act as the primary source of mining revenue. It's also possible that the community-network could decide to change the bitcoin "monetary policy" or rules, effectively keeping the miners in business.
Community Building: Lastly, I believe with each halving we will continue to build a strong network. Even if the price does not rally as a result, the interest and intrigue creating by the halving will continue to bring more people to the community. It's through this conduit, that we will strengthen the system and bring more people into the bitcoin ecosystem. In my opinion, the "hype" surrounding halvings is one of the most valuable aspects of it. Indeed, the more people that come into bitcoin, the fast we can create a new world peopled by cryptocurrency users.
At the end of the day, the halving is just a part of bitcoin's intrinsic fiduciary policy. It is meant to keep a check on the supply of coins and prevent inflation. If the protocol was allowed to run unchecked and continue creating the same amount of overtime, bitcoin would theoretically lose value as the market would become flooded with excess tokens.
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