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What is Bitcoin Halving and what impact will it have on the price

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What is Bitcoin Halving and what impact will it have on the price

We talk about Bitcoin almost exclusively in relation to its price: it rises or falls, sudden surges and powerful collapses. Its value is determined by a singular supply and demand mechanism subject to multiple variables: government actions, sales of its large holders (30% of Bitcoins today are in a few dozen wallets), liquidity in circulation among retail investors, current trends.

Bitcoin is a speculative asset. One of many. But unlike the others, it also has a complex mechanism, made up of equations, balances, machines with enormous computing power and a community of thousands of fans who venerate its dynamics bordering on the sacred. What will happen between April 19th and 20th is one of the tools designed by the mysterious inventor of the cryptocurrency, Satoshi Nakamoto. This tool is called Halving. In Italian ‘halving’. One of the terms that make up the rich and complex vocabulary of Bitcoin, where we find terms such as ‘blocks’, ‘nodes’, ‘peer network’, ‘widespread ledger’. Halving gives you the chance to understand the mechanism behind Bitcoin a little better.

What is Bitcoin Halving

Halving is a phenomenon that occurs every four years. So far there has been that of 2012, 2016, 2020 and the next one, 2024. It is one of the fundamental laws of the very functioning of bitcoin, foreseen by the document that sanctioned its birth in 2008. Halving is the programmed, constant, immutable halving of the cryptocurrency reward obtained by miners, i.e. those who are responsible for validating the transactions that take place on the blockchain. At this halving round, the reward for this work – through which new bitcoins are placed on the market – will go from 6.25 to 3.125 bitcoins.

The role of miners and the halving of the reward in Bitcoin

Miners validate transactions. That is, they certify the passage of value from one point of the network to another, for example, from one wallet to another. They write it in the bitcoin accounting book, a public register, of which they are the custodians. For this role they get a reward, in bitcoin. And to ensure that their reward retains value, they are driven to do it well, otherwise their reward would evaporate. They are at the same time the guarantors of the transactions and the guarantors of the entire value of bitcoin.

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It is true that this reward halves every four years, but it is also true that since its birth (2009) bitcoin has gone from zero to around 65 thousand dollars. By producing scarcity, halving generates value. And by halving the reward, the supply of new bitcoins in circulation (which miners could keep, or sell) is halved. The effect is generally an increase in price in the preceding and following months.

Bitcoin, a finite good. A pastry shop that will only make 21 million cakes

The reason for this principle is in the theory of bitcoin itself: bitcoin is a digital asset of which one day no more than 21 million copies will exist. To ensure that their price does not suffer inflationary dynamics (which therefore loses value), the bitcoin protocol provides that every four years less and less can be created, and then even less, until their creation is completely stopped by about 2140. Then the last of the 21 million bitcoins available will be extracted. To date, approximately 19 million have been created.

It’s as if bitcoin were a pastry shop that has all the ingredients to bake 21 million slices of cake. It’s just that over time it produces less and less of it. And the fewer slices he produces, the more palatable they will become. Precious. The Halving is the monetary policy tool of the bitcoin community, which in this case behaves like a central bank that prints more or less money to control inflation. Same principle, but opposite action. Also because bitcoin is often considered a digital currency, but in reality it does not behave like a currency: only 2% of transactions are made to purchase goods or services. The rest are speculative dynamics, large sales or investments. The Halving is destined to give new impetus to these dynamics.

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