Just like all financial commodities, Bitcoin price occasionally fluctuates following existing market conditions. However financial analysts conclude new assets such as Bitcoin tend to fluctuate more than their traditional counterparts. Bitcoin is programmed to automatically control its market supply by reducing the number of new coins created.
As we approach the third Bitcoin Halving since the release of the cryptocurrency we prepared answers for eight questions regarding Bitcoin halving and how it affects the cryptocurrency’s network.
How are new Bitcoins Created?
Bitcoin creators Satoshi Nakamoto tethered the process that brings new Bitcoins into existence to the computation work required to secure the cryptocurrency from counterfeits. New Bitcoins are generated by miners who deploy expensive computing hardware to confirm every single Bitcoin transaction happening in real-time. Miners confirm Bitcoin transactions recorded on a public ledger database known as the Blockchain. Miners are rewarded for their effort in bitcoins which is rationed onto blocks also referred to as Block reward.
What is Bitcoin Halving?
Bitcoin halving is a pre-programmed reduction in the number of Bitcoins miners receive. Bitcoin Halving occurs after every 210,000 blocks of Bitcoin is mine which occurs in approximately four years. After every Halving, the amount of Bitcoin miners receive per block is reduced by 50 percent. Bitcoin miners’ reward started with 50 bitcoins around 2009, the reward would reduce to 25 and 12.5 in subsequent Bitcoin Halving of 2012 and 2016 respectively. After the May 2020 Bitcoin halving is successfully executed Bitcoin miners reward will reduce to 6.5 bitcoins for every block successfully mined.
Why Bitcoin Halving Occurs?
The fundamental Bitcoin program emphasized limited the supply of new coins into the market as a principal means of controlling inflation. There is only 21 million Bitcoin that can ever be in circulation at all times. Unlike fiat currencies, Bitcoin is designed to ever gain value due to its limited supply and projected increasing demand.
When is the next Bitcoin Halving Happening?
Bitcoin’s third halving is expected to take place sometimes in May 2020. However, the exact date of the halving is dependent on the cumulative block time incurred to generate new blocks of Bitcoin. The block time period can either increase or reduce the exact date and time the halving would occur. There are a total of 64 more upcoming Bitcoin halving before all the 21 million Bitcoin are mined and brought into the market around the year 2140. During this time, both Bitcoin mining and Halving will cease and miners’ rewards will be in the form of fees collected for transaction handling.
What are the effects of Halving on the price of Bitcoin?
In all the two previous Bitcoin halving, Bitcoin having shot up insanely. For instance, after the 2012 halving, Bitcoin increased by more than 8,000 percent in a period of just 12 months. Additionally, after the 2016 Halving, Bitcoin rose by a significant 1,000%. There is some consistent relationship between Bitcoin mining reward Halving and Bitcoin price increase. Although some experts argue the Bitcoin mining reward halving has nothing to do with Bitcoin price rallies, an analyst at Canaccord Genuity says Bitcoin Halving has a significant psychological effect on the which drives Bitcoin price up occasionally.
How Halving will affect Bitcoin Miners?
Bitcoin mining requires a huge amount of energy both for running the mining rigs and cool the space around the rigs. For this single reason, most major Bitcoin mining farms are situated in regions with a generally low power cost. At the moment, the cost of mining a single Bitcoin varies from about $3,500 to $6,500 depending the cost of mining rigs, power, and space where the rigs are assembled. With the ever-increasing completions among Bitcoin miners globally, many small scale miners are leaving the business or opting to mine bitcoins in mining pools.
How will Halving Affect Existing Bitcoin Holdings?
Unless there is a significant change in price after halving, existing Bitcoin deposits won’t be much affected by the upcoming Bitcoin halving. However, since most post Halving price predictions are bullish, your Bitcoin deposits have a higher chance of increasing in value after the halving that it has now.
Difference between Bitcoin Halving and Fork
Bitcoin mining and Forks two different things. As we explained before, having is a preprogrammed reduction of Bitcoin miner’s reward. Forks, on the other hand, is an upgrade to the existing Bitcoin software. Bitcoin Fork is intended to furnish known bugs within the existing Bitcoin code and sometimes add new features to the existing Bitcoin codes. One of the most prominent Bitcoin fork to ever occur is the Bitcoin Cash hard fork of 2017.