In the past, we have seen cases where halving has significantly affected the performance of a cryptocurrency. It is evident from the previous Bitcoin Halving that this event plays an influential role in the cryptocurrency ecosystem. With the next BTC halving on cards for 2020, “Halving” turned out to be the topic of debate in the crypto community.
One has a doubt what exactly is halving and how it affects the cryptocurrencies. In this article, ChangeHero brings you everything you need to know about halving in one place. This essay will give you a general overview of halving and how it would impact the community as a whole.
Before diving into the core topic, it is essential to understand what exactly happens in the blockchain. Everything starts with mining, a computerized process of verifying transactions on the blockchain. Mining also requires solving complicated math problems. When once solved and after a new block was discovered, it can be added to the blockchain, providing the miners with a reward.
This block reward consists of the block subsidy and the transaction fees. When miners successfully mined a new block, they get newly created coins, generated by a special kind of transaction called coinbase transaction, which rewards a miner with the block reward for their work. This process is considered to be compensation or proof for miner’s work.
Unlike fiat, cryptocurrencies are deflationary in nature and their value increases with time. This is due to the fact that the supply is limited to a certain amount. Halving aims to create a deficit by limiting the supply of new coins into the market. This can be achieved by reducing the mining rewards periodically to ensure that the currency’s supply is evenly distributed and maintains the value.
In simple words, halving is the process of dividing the block rewards for mining in half. This process occurs at regular intervals based on the coin’s protocol. For instance, Bitcoin’s halving takes place for every 210,000 blocks which is roughly once in four years and for Litecoin, the phenomenon takes place for every 840,000 blocks.
The historic manipulations with halving and price are always notable for the coin. Especially these actions are meaningful for traders, exchange platforms and for those, who take an active part in the crypto ecosystem. If fewer digital coins are being made, the newly increased deficit automatically makes them more valuable.
Buzz in the community
Being an important part of the coin’s protocol, halving is an effective way of maintaining currencies’ value. Crypto community has diverse views on the halving events of cryptocurrencies.
Morgan Creek Digital co-founder Anthony Pompliano is optimistic about the halving events in a tweet and teased the bankers if a similar event happens for fiat. On the other hand, Kyle Samani, the co-founder of Multicoin Capital Management, has not a bullish opinion for cryptos. Kyle thinks that halvings are becoming a lot less important.
While the average traders get their hands on digital currencies expecting the price to sky-rocket, some experts are cautioning.
LTC founder and creator Charlie Lee mentioned that the consequences are risky and people shouldn’t buy-in if can’t withstand the drops. He added that halving might have a “shocking” impact on miners. Lee also thinks that some miners will become unprofitable after the block halving.
This falls in line with the problems that the miners need to tackle from such events. Essentials for mining such as electricity, hardware components would turn out to be more burdensome and makes it difficult for the miners to maintain the farms.
In a Nutshell,
Halving is an event that has the potential to change the value and perception of the community on a cryptocurrency greatly. There is no actual rule that history has to repeat but might.