Bitcoin Halving is about to take place in less than a month, and the unceasing buzz is raising the expectations of the crypto enthusiasts. The past two halvings resulted in a price surge in the long-term, and the tertiary is also expected to follow the same. Here’s everything you need to know about this major event in crypto.
Before we dive into the halving, it’s worth mentioning the core idea behind Bitcoin. Soon after the 2008 global economic crisis, Satoshi Nakamoto published the Bitcoin whitepaper on 31st October. But the reason behind this path-breaking invention came into the limelight when the genesis block of Bitcoin was mined on 3rd January 2009 with the message, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. This well indicates Satoshi’s dismay towards the traditional financial institutions. Bitcoin was created to avoid such crisis and provide financial freedom to the people.
What is Bitcoin Halving?
Unlike the dollar bills, new Bitcoins are created through mining. Mining is a computerized process for verifying the transactions on the blockchain. It is an energy-intensive and expensive process in which huge amounts of computing power is a key factor. These machines run algorithms to solve complicated math problems. A new block is added to the blockchain once the solution is found. For their efforts to keep the chain running, miners are rewarded with fresh Bitcoins.
Bitcoin is a deflationary asset as its supply is limited to a total of 21 Million. One might think that why don’t miners mine all the cryptocurrencies at once. This may take a toll on the price of the Bitcoin and result in a crash. To avoid this and ensure a uniform distribution of new Bitcoins and to maintain the value, Satoshi proposed Halving.
To be more precise, Bitcoin Halving is the process of reducing the block rewards in half. The block reward is halved for every 210,000 blocks for the Bitcoin protocol.
The Aftermath Of The First Bitcoin Halving
A year before the first halving, BTC was traded at $3. It continued to rise to reach $12 till the having premiere in November 2012. The initial block reward of 50 BTC per block was reduced by 50% to 25 BTC per block.
Interestingly, there were no immediate effects on the coin after the BTC halving event, BTC continued growing in the subsequent year. Apart from the short bear market in June, there were not many setbacks for Bitcoin. The priced picked up quickly in August and crossed the thousand dollar mark for the first time in November 2013 and was traded at over $1100 before bears hit the market again.
Scenario After The Second Bitcoin Halving
In July 2016, BTC’s block reward was halved for the second time in which the reward was reduced to 12.5 BTC per block. Prior to the second BTC halving, in 2015, Bitcoin was crushed by the bears and fell to the lows of $250. The digital currency grew considerably to reach $600 by the time of the second BTC halving in July 2016.
As many have already witnessed the first halving event starting a bull run, the expectations around the second Bitcoin halving event rose, hoping that it would trigger another bull run. Akin to the previous halving event, there were no immediate price corrections or volatility. The digital currency continued to grow in the following year at a steady pace. Bitcoin embarked on a massive bull run in the second half of 2017 and hit the all-time high of $20,089 on 17th of December.
What Will Happen After The Bitcoin Halving 2020?
The third Bitcoin Halving is about to take place at Block #630,000 and is expected to happen on the 12th of May according to CoinGecko. The current block reward of 12.5 BTC will be reduced to 6.25 post the halving.
As the miner reward will be halved it will have an impact on the miners who contribute to the network. Miners will witness a significant drop in their revenues. There are only two ways in which a miner can be compensated post the BTC halving. The first would be through the transaction fees per block. But the Bitcoin’s block size limit of 1MB doesn’t appear to please the miners with transaction fees enough to cover the expenses. The other possible incentive to stay on the chain is the value of the Bitcoin itself. Though the block reward will be reduced by 50%, a proportionate increase in the value of the Bitcoin would encourage miners to stay in the business.
Researchers in Xangle found that the Bitcoin Hashrate has gone up exponentially after the first two halvings. The hashrate increased by 19.766% a year after the first BTC halving and the same rose by a whopping 248% post the second halving event.
This also falls in line with the price increase of Bitcoin which we have explained in the earlier sections. Bitcoin price crossed the thousand dollar mark in 2013 which is almost after a year of the first halving. The second halving event also had similar traits in which Bitcoin’s value peaked after a year. This very well indicates that the increase in the value of Bitcoin is the major motive behind the miners.
In March of 2020, Bitcoin’s price plummeted which resulted in a significant drop in mining. Currently, Bitcoin is recovering and there is a considerate increase in the hashrate. This can be connected to the Bitcoin Cash and Bitcoin SV halvings in which the block rewards were already reduced, recently. Miners from both the BCH and BSV would supposedly be migrating to Bitcoin blockchain and also those who are already on Bitcoin chain might be pumping the older mining rigs to reap the profits before the reward gets slashed. It is evident that economic incentives drive the mining and miners would be solving the riddles to confirm transactions only till the Bitcoin’s value goes up. In short, Hash will follow the Price.
Community pulse on the Bitcoin Halving
Bitcoin Halving is a hot topic in the crypto community. The internet folks are excited about this event and searching for info. The search term “Bitcoin Halving”, showed a peak in the interest of the audience according to the Google Trends.
We have been hearing many influencers and Executives of crypto firms voicing their opinion about this major event.
Kraken COO, Dave Ripley expressed his optimistic views on the BTC halving in an interview to The Block. He stated, “Historically, we saw a price surge in the 1.5 years after the halving, so it’s highly possible we’ll see new entrants in the market.”
The American Entrepreneur, Tim Draper took a stance on his previous statements on Bitcoin’s price on a fireside chat with Block TV and predicted that Bitcoin would be reaching $250,000 in about six months to a year after the third Bitcoin Halving.
On the other hand, a famous trader Peter Brandt thinks that the Bitcoin Halving is overrated and explained that he considers the daily trading volume to be the real supply of Bitcoin and the daily reduction of mined Bitcoins will not be a big change.
A famous Bitcoin Trader and analyst that goes with the nickname Crypto Michael suggested that the current global economy would have a greater impact on the Bitcoin price than the halving and hinted that it’s hard to expect how things unfold amid the crisis.
History Tends To Repeat
On a closer look, the two halving events have a few things in common. Firstly, there is no immediate effect on the price right after the Bitcoin Halving. Secondly, in both the halvings, Bitcoin’s price hit new highs after a year. But, the current economic situation and the COVID-19 pandemic may also have some influence on this. With Bitcoin recovering and the buzz around it growing day by day we believe that the halving will impact the network as a whole. Though we cannot affirm that the previous events will be repeated, but history has the tendency to do. All we have to do is trust Bitcoin and watch things unfold.