By TOI Staff August 20, 2023 Update on : August 20, 2023
Bitcoin is the first decentralized virtual currency that enables peer-to-peer transactions and ownership transfers – it doesn’t rely on traditional intermediaries like banks, governments, agents, or brokers. Bitcoin provides the first illustration of blockchain technology, linked to a revolution in finance and the economy as a whole. The tokens have an exchange value, meaning they can be traded for other commodities. A cryptocurrency exchange like Binance, with a focus on security, is the safest way to obtain Bitcoin. The Bitcoin price today is $29,797.12. The value of Bitcoin has experienced a gradual increase since it was first introduced; its tangible value fluctuates on account that Bitcoin trading is active 24/7.
Mining is the process of creating new Bitcoins. It requires solving extra-difficult puzzles and validating cryptocurrency transactions on the blockchain network (soon thereafter, they’re added to the distributed ledger). The Bitcoin blockchain is on the point of undergoing a halving, an event that takes place every four years or so. The next Bitcoin halving is anticipated to happen in April or May 2024. It’s a planned reduction in the rewards miners receive – the cryptocurrency rewarded Bitcoin miners when they successfully validate new blocks is cut in half from 6.25 Bitcoins to 3.125 Bitcoins. The last Bitcoin halving happened in May 2020.
A Bitcoin Halving Is a Condition Set in Bitcoin’s Protocol
Bitcoin halvings take place every 210,000 new blocks are added to the blockchain. Fast forward another 210,000 blocks, the reward for Bitcoin miners becomes 3.125 coins. Each coin can be divided into 100,000,000 Satoshis; the layers on top of Bitcoin can further subdivide. The halving is programmed into Bitcoin’s protocol to reduce the speed at which new coins are mined, guaranteeing price stability as the supply that hasn’t yet circulated diminishes gradually. Many argue the halving system was designed to distribute tokens more quickly at the start to encourage people to join the Bitcoin network. Nevertheless, Satoshi Nakamoto has never clarified the issue.
By Lowering The Reward, The Bitcoin Halving Helps Control Inflation
What’s certain is that the Bitcoin halving reduces the inflation rate. Bitcoin is designed to be deflationary, which means it deflates over time because the supply decreases. Like many deflationary cryptocurrencies, Bitcoin has a fixed maximum supply that limits the overall number of coins created. No new Bitcoins will be released after the 21 million limit is reached. Miners generate new Bitcoins and tend to hold them in bull markets rather than selling them. Previous Bitcoin halvings have led to spikes in price, with periods of pronounced volatility. At any rate, because Bitcoin has a limited supply, it will remain hard to find, and its value will remain steady over time.
What Impact Does Halving Have on Bitcoin Miners?
The four-year rule isn’t exact, which is why future Bitcoin halving dates are roughly calculated. As mentioned earlier, halvings are scheduled every 210,000 new blocks, and how fast they’re added may differ slightly. The reduction of revenue for Bitcoin miners will impact those who are less efficient. More precisely, they’ll face double the energy costs to mine a single token, but it’s possible to overcome these challenges by installing more efficient machines, optimizing energy consumption, and putting aside cash reserves, to name a few. The amount of Bitcoin released as a reward still matters, but the difficulty of finding valid blocks can lead to a lack of motivation to continue mining.
Undoubtedly, miners are the backbone of Bitcoin’s security apparatus, as they verify transactions and prevent double-spending. Simply put, they legitimize Bitcoin transactions, ensuring their validity. Rewards encourage more individuals to take part in the network, protecting Bitcoin against threat actors. Considering the above, it seems unfair to reduce the reward offered to Bitcoin miners. Cryptocurrency should be awarded for hard work, dedication, and a positive attitude. If the rate of Bitcoin creation tightens, it could lead to a bullish market when prices trend upwards. Bitcoin’s halving is bad in the short term because rewards are reduced, yet it has some advantages. The price may stay higher.
Be Ready for The Next Bitcoin Halving So You Can Capitalize on It
The value of Bitcoin has increased after the previous halvings, yet taking into account the cryptocurrency’s volatility under normal circ*mstances, it’s hard, if not impossible, to draw a definitive line as regards market performance. In theory, you can buy and sell Bitcoin at convenient moments during the run-up and following the halving event. Nonetheless, there’s no way of knowing what will happen. It’s essential to do your research and look at various technical indicators to come up with a strategy. Some investors may sell in anticipation of the Bitcoin halving, causing the price to decline.
The diminished block reward will limit mining profitability, so the security of the Bitcoin network may be compromised if too many miners leave. As the cryptocurrency market adjusts to the halving of the block rewards, Bitcoin’s price may become unstable, so it may not be an enviable medium of exchange. In other words, you must do your due diligence and see how the market reacts to the halving event. You may be able to get some gains. Nothing will happen to your crypto holdings after the Bitcoin halving; only miners are affected. If you strongly believe that Bitcoin’s price will rise following the next halving, buy Bitcoin before April/May 2024. Don’t let your emotions drive your investment decisions.
Concluding Thoughts
There’s a direct relationship between the number of block rewards and the number of new Bitcoins mined, so reducing the number of block rewards paid to miners results in tightening the supply. It’s difficult to establish the exact effects of the next Bitcoin halving. The cryptocurrency market is highly inconsistent, which means that past performance isn’t a guarantee of future results. Decide on your actions as an investor for the medium or long term by paying close attention to technical indicators. The points listed above aren’t exhaustive, but they provide a better understanding of the problems faced during the next halving event. Staying up to date with the latest trends and developments is key to success.
Read more: How to Prepare for The Bitcoin Halving in 2024
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