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What is halving for Bitcoin in a complete guide?

What is halving for Bitcoin in a complete guide?

  • 9 December 2020
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:What is halving for Bitcoin and what does it mean? When does it happen? So these are the questions that cryptocurrency users are looking for answers to. On average, every four years, after 210,000 blocks in the Bitcoin blockchain, the production of new bitcoins suddenly halves.

A more accurate explanation is that the network reduces the reward of miners for adding a block to a blockchain by 50%. Satoshi Nakamoto, the anonymous creator of Bitcoin, has put the halving into the network code to control bitcoin inflation.

Since the Halving event halves the supply rate of new bitcoins or the same supply, experts believe that this event has a significant impact on the price of bitcoins and can increase the value of bitcoins over time.

What is halving for Bitcoin?

To understand the concept of “what is halving for Bitcoin,” you must first become familiar with the basic concepts of bitcoin mining. In short, it can be said that volunteers, as miners, provide the network with the ability to process their hardware in a process called “mining” to validate and secure bitcoin transactions. This requires power consumption and advanced mathematical equations.

The network generates some bitcoins as a reward and gives them to miners. Halving halves the miners’ bonuses every 4 years. When Satoshi Nakamoto was setting the rules for the Bitcoin protocol, he emphasized two rules the most:

  1. Bitcoin value is finite and limited to 21 million units.
  2. The number of bitcoins produced per block will decrease by 50% after every 210,000 blocks.

What is the philosophy of this event?

You may be wondering why designing this change in the Miners’ Rewards was necessary. So why not keep the reward rate for miners constant? Will this event end to the detriment of the miners? The answer to these questions lies in the law of supply and demand.

If miners generate new bitcoins quickly, or they can produce an infinite number of bitcoins, the high number of bitcoins in circulation will gradually decrease the bitcoin value.

What does the Ethereum creator say about “what is Halving?”

Ethereum creator Vitalik Buterin, in his note to the BitcoinMegzine website, explains the need to slow down the distribution of bitcoins through the Halving event:

“The main reason for doing this is to control inflation. One of the biggest mistakes of traditional Fiat currencies, which are controlled by central banks, is that these banks can print as much money as they want and if they print too much, the value of government currency, according to the law of supply and demand, rapidly declines.”

What is Halving’s effect on the price of bitcoin?

The most important question people ask about “What is halving” is whether it will affect the price of bitcoin, and the answer is that no one knows. In fact, on paper and in theory, if we assume that demand remains stable, and supply halves, the price must be twice as high as before to meet demand. But no one can be sure that the demand will remain stable and will not decrease.

As explained in “What is halving”, the available arguments are that the price will increase or there will be no change.

Effect of halving in price

What is Halving's effect on the price of bitcoin?
What is halving’s effect in the bitcoin market in the past?

So far, three halvings have taken place, and the market has faced the following:

  1. The first bitcoin halving happened in 2012, on November 28, after the mining of the 210,000th block. Bitcoin price was $ 13.42 at the time.
    If you ask “what is halving’s effect” did not seem to have much of an impact on the price. It is true that the price of Bitcoin has reached $ 230. But many referred to the financial crisis in Cyprus.
  2. In 2016, a week after the Halving event, there was not much change in the price of bitcoin. At that time, the price of Bitcoin was around $ 650, and a week later it reached $ 675, which was not a significant change. But more than one year later in 2017, the price of Bitcoin reached $ 20,000 that is the highest point in history.
  3. The third Halving was the largest digital currency market event on 11 May 2020. Also this Halving reduced the bitcoin production rate from 12.5 BTC to 6.25 BTC. This is the rate for each new block that ASIC miners mine approximately every 10 minutes. In simpler terms, for the next four years, the network will halve the number of new bitcoins. As a result this number is the “mining” day by day from about 1,800 to 900 BTC per day.
    In reply to “What is halving and what is its effect in the bitcoin market,” we should say this is equivalent to about $ 17 million at the market price of Bitcoin on December 2, 2020, which is $ 18,891.6o.

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