What is Bitcoin Halving and When Next Bitcoin Halving Occurs

  • George Shnurenko
    ⭐ Features

    Why a means of limiting the supply of Bitcoin at any given time is required

What is Bitcoin Halving and When Next Bitcoin Halving Occurs
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When Satoshi Nakamoto created Bitcoin in 2009, his plan was to ensure that the creation and distribution of Bitcoins did not rest solely on the shoulders of a select few. The concept of Bitcoin mining was introduced to put this in action. Before we can even attempt to understand Bitcoin halving, it is important for us to dissect Bitcoin mining and what it entails.

What is Bitcoin mining?

Bitcoin mining involves reward for those who, through computational work, verify and authenticate new transactions into blocks. In essence, Bitcoin mining is the process behind the creation of new currencies and it is all about adding a transaction to Bitcoin’s public ledger. This ledger, because it comprises chains of blocks, is referred to as a Blockchain.

So, Blockchain mining, in essence, is a record-keeping activity and it is executed by miners. These miners ensure that the blockchain is uniform throughout, up to date, and immutable. In return, these miners are offered a certain amount of newly created coins.

What is Bitcoin halving?

Now that the reward offered to Bitcoin miners is well understood, we can move on to what Bitcoin block halving is all about. Satoshi Nakamoto in his really sophisticated code programmed the Bitcoin such that after two hundred and ten thousand (210,000) completed blocks, the amount of new Bitcoins created is halved.

Check the Bitcoin halving history and you will observe a peculiar pattern. In 2009 when Bitcoin was newly launched, the reward for miners was capped at 50 Bitcoins per block. In November 2012, after almost four years, the reward reduced by half to 25 Bitcoins per block. This period was officially known as the second reward era.

Bitcoin halving schedule is such that every four years, the event occurs. Even though Bitcoin halving occurs after 210,000 blocks have been completed, it is possible to estimate an arbitrary date.

The third reward era of Bitcoin mining occurred in July 2016 and the reward for miners was reduced to 12.5 Bitcoin per block. This will continue for years until the year 2140 when all the 21 mln Bitcoins in store have been exhausted.

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Why do we have Bitcoin halving events?

This is a very important question to ask, especially for miners. This is enacted to ensure that Bitcoin is in concordance with the laws of supply and demand. A perfect illustration is a monetary supply governing the distribution of fiat currencies in central banks.

A new Bitcoin is created based on certain features of the currency which are pre-programmed into the system. With a fiat currency, there are various factors involved. One major discrepancy is the consideration given to debt, inflation, and other factors.

This is why a means of limiting the supply of Bitcoin at any given time is required.

Implication of Bitcoin mining event

  • Reduction in rewards

Considering the fact that many of these miners rely solely on the reward they get, further Bitcoin halving might have less than desirable effects. One major reason for this is the rigidity of Bitcoin and the maximum allowable coins in circulation. Adding these new blocks at a reduced price without a concomitant increase in the transaction fees or the value of Bitcoin they earn might cause bankruptcy.

  • Stiff competition for mining

A Bitcoin mining event means that the amount of Bitcoins being mined are steadily increasing and sadly, this means that we have lesser Bitcoins to mine. Within a short while, the competition will become fierce and transactions will take more time. In the event where miners do not shut down out of lack of activity, we can expect the scarcity to engineer an increase in the price of Bitcoins.

  • Decreased popularity of mining

Some companies are already feeling the brunt of Bitcoin halving. In 2016, KNC Miner, a Bitcoin mining company in Sweden, declared bankruptcy and their major reason was the imminent Bitcoin halving event.

Another report declared that about 25 percent of mining rigs will be affected by the net halving event. As it becomes increasingly expensive to mine, large-scale mining setups will reduce and this will make profitability almost impossible, dissuading new investors.

When is the next Bitcoin halving event?

Presently, miners are rewarded with about 12.5 Bitcoins for completing a block and 2500 transactions make up a block. Sometime in May 2020, the next Bitcoin halving event will occur and this will cause the reward to further reduce to 6.25 Bitcoins per block.

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Expectations from the Bitcoin mining event

Bitcoin halving countdown comes with some certain expectations. Some of them are listed below.

  • A decline in has rat might be imminent

The hash rate is the speed at which a computer completes a transaction in the blockchain network. Before the last Bitcoin halving, the hash rate was estimated to be 1.54 exahashes per second and it was tipped to reduce even further. This is due to the fact that some older equipment which is no longer seen as profitable will leave the network and this will, in turn, result in a decline in the network hash rate.

  • The Bitcoin price will drop and then rise

While it is normal that those investors who pumped loads of funds into Bitcoin will be looking to cash out, the apprehension surrounding Bitcoin will subdue and will cause a renewed interest in the currency. The law of demand and supply will set in, correcting the previous fallacy and the new purchase will not negatively impact the currency.

Four-year rule

It will not take long for us to come up with justifications for the increase in price and adoption and this is not unexpected. It has occurred twice now and the third time won’t be an exception. Questions like “What is Bitcoin halving?”, “Is Bitcoin halving necessary?” are now well addressed. Also, the Bitcoin halving schedule can be estimated based on the four-year rule.

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Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?

  • Yuri Molchan
    ⭐ Features

    Stablecoins show hardly any volatility compared to Bitcoin and altcoins, many are hoping that they will be able to bridge new crypto economy and regular fiat money

Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?
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Bitcoin, the father cryptocurrency, emerged in hope that it will remove all intermediaries in electronic commerce that cut off their share of payments. BTC was perceived as a P2P way to replace fiat cash in an electronic format, which would enable one party to pay another without any financial institution or payment platform which would demand its share of a transaction as a reward for its services.

What is wrong with Bitcoin

For quite a while Bitcoin was performing the way the crypto community expected. But the situation changed later – BTC rate became weaker, thus bringing down its financial and economic reliability, when it gets to be used as a regular means of payment.

You cannot have a currency that would cost like a British castle today, a gram of gold – tomorrow and a pack of French fries the day after.

At that point practical fintech minds came up with an idea of creating something which would become a breakthrough in the universe of crypto – a so-called stablecoin.

Will stablecoins solve the volatility problem?

Technically, stablecoins are protected from the volatility roller-coaster that Bitcoin and other cryptos love to ride. They are programmed to keep their prices stable and investors now are largely attracted to this new type of digital assets.

Stablecoin does not show any volatility in its monetary value, since it has a fixed connection to an asset it is pegged to. The major goal of using stablecoins is taking the best from decentralized crypto coins and combining it with a constant value. Thanks to it, stablecoins can be used as a reliable means of trade.

Asset-pegged stablecoins

Asset-backed ones get their value from an asset as can be understood from the name. An asset provides the necessary value to a coin, as well as the necessary legitimacy.

A great example of an asset-pegged stablecoin is Tether (USDT). In spite of a series of scandals at the end of last year, it remains the most popular stablecoin in the crypto market.

Recently, it has partnered with the Tron Foundation to launch a Tron-based stablecoin.

Other examples are TrueUSD (TUSD), USD Coin (USDC), the Gemini Dollar (GUSD), and the Paxos Standard (PAX). They are all pegged to the USD.

Crypto-backed stablecoins

Some digital coins work in a similar way to fiat-backed ones, however, they are pegged to collateral crypto. That means that crypto assets that ensure the value of such stablecoins are stored in a wallet similar to escrow.

A good example of a crypto-pegged token is Maker, which is ranked 16 on CMC.

Algorithmic stablecoins

Even though, stablecoin can be interesting at first thought but the way they are built goes against the principle of decentralization that crypto coins have as a foundation. Thus, many crypto fans and evangelists are positive that stablecoins must be linked towards not a centralized asset but a computer algorithm which takes value from a balance between supply and demand.

Basis is now considered the most promising algorithmic stablecoin of all.

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Can stablecoin ensure smooth future for the crypto industry?

The primary goal of all crypto assets was and remains to come up with virtual asset that would be liquid enough and not vulnerable to market volatility. From this point of view, stablecoins are a dream of all crypto fans and evangelists of a decentralized economy.

Apart from the potential to conduct crypto transactions smoothly, experts believe it can bridge the two worlds – fiat and crypto, bringing them a mutually beneficial coexistence. However, that may take time.

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