In May 2020, a special event will occur on the Bitcoin blockchain: Halving Day. This is the third in Bitcoin history, the last one taking place in July 2016. This phenomenon occurs every 210,000 blocks and to this day it has always been followed by a rise in the market. In this article, we will explain what halving is and how it impacts the blockchain network.
Disclaimer: This article does not constitute investment advice, legal advice, tax advice or any other kind, nor should it inspire any investment or decision whatsoever.
How are new bitcoin issued?
Before talking about halving, it is imperative to understand how new bitoins are issued. There will be 21 million bitcoins in circulation, not one more and not one less. This rule was defined in the WhitePaper (business plan of a blockchain / cryptocurrencies) of bitcoin when it was created. These 21 million bitcoins will be distributed according to very specific rules. These are the miners, these powerful computers made available to the blockchain in order to secure transactions there. The miner performs algorithmic calculations to find validate and certify a transaction on the blockchain. As this work requires energy (electricity), miners are rewarded for the work carried out. This reward is issued in the cryptocurrency of said blockchain.
What is a halving on a blockchain?
The word halving originates from the English word “half” meaning half. Thus, halving is an event taking place on a blockchain from which the rewards issued to minors are halved.
It should be understood that halving day does not affect all blockchains and cryptocurrencies. In fact, only blockchains using the cryptocurrency mining system (Bitcoin, Dash, Litecoin, etc.) are sensitive to this type of event.
When does it happen?
Halving is a phenomenon that can be anticipated in advance since it takes place at regular intervals. For the most famous blockchain, Bitcoin, halving takes place every 210,000 Blocks. Knowing how long an average blockchain lasts, it is possible to anticipate future halvings with fairly good precision.
2020 will be the year of the third halving of the Bitcoin blockchain. Today, miners share the sum of 12.5 bitcoins per block. During the first 4 years of the Bitcoin blockchain, 50 bitcoins were distributed per block, then 25 after the first halving and 12.5 after the second. From May, the third date, miners will have to settle for only 6.25 bitcoin per block.
What impact on the course?
In the history of blockchain and cryptocurrencies, halving have played very important roles, notably on the course of the course. However, do not expect to see the price of bitcoin move meteorically on D-Day, these developments have generally taken place over several months.
The first two halves were followed by a relatively large increase, which is one reason why many people are eagerly awaiting this new halving. Everyone goes with their predictions, be careful with this speculation.
But then why in history has halving always been synonymous with an increase when miners are paid less? In fact, it’s quite logical. You have to understand that the amount of bitcoin in circulation is known, we know exactly how much bitcoin is distributed in blocks, how much is in circulation today and how much there will be at the end (the famous 21 million). Thus, the more the rewards distributed to minors decrease, the more difficult it is to create new bitcoins and the closer we get to the latest shows. Currently, 1800 bitcoins are generated every day. The majority of them are sold instantly to cover the costs of the minor. When we witness a halving, less bitcoins are generated, and therefore, less are put on the market for sale. This phenomenon increases the scarcity of assets. The price being governed by supply and demand, demand increases, supply is reduced, prices go up.
However, just because the first two halvings have meant an increase does not mean that the third will. As the date of the halving is known in advance, most of the major players in this market have already prepared their strategy and taken their precautions.
However, specialists agree that the next halving will undoubtedly be the last major bitcoin halving.