Bitcoin follows a complex mining and rewards procedure for its production, but its principle is deeply rooted in the fundamental law of economics – supply and demand. In order to keep the value intact, Bitcoin has adopted a procedure called Bitcoin Halving. In simplest terms, Bitcoin halving is defined as a phenomenon that halves the rate at which the new Bitcoin is created by the miners. In other words, miners will receive half Bitcoin in rewards once this halving takes place. For your reference, the Bitcoin halving happens once in every four years.
Bitcoin Fundamentals and Halving
Just so you know, the supply of Bitcoin is finite, as a total of 21 million coins will be produced in totality. Once this number is reached, no more Bitcoin will be extracted – which makes Bitcoin a finite resource. This finite nature of Bitcoin helps it to retain its importance and according to an estimate, there are around 18 million Bitcoin today in circulation. Despite a fixed limit, Bitcoin is not expected to reach its extraction limit anytime soon. The reason is the Bitcoin halving procedure, which is part and parcel of blockchain technology that powers Bitcoin.
Bitcoin halving code has been embedded into its blockchain technology that powers the coin. According to this code, Bitcoin halving will automatically take place every time after 210,000 blocks of the coin are mined. This mechanism is often referred to as Bitcoin Halving and makes sure that the supply of the largest digital coin by market capitalization remains finite.
In order to understand the concept of Bitcoin mining reward, it’s important to give a once-over to the operating mechanism behind blockchain technology, as many of us may know that in blockchain, the information is stored in blocks (with each having an approximate size of 1 MB). These blocks are validated by miners and upon validation of blocks, miners are rewarded some specific number of Bitcoin.
At the outset, when Bitcoin was launched in 2009, mining rewards were pegged at 50 Bitcoins per block. As Bitcoin halving takes place every 210,000 blocks, this means a total of 10,500,000 Bitcoins (210,000 X 50) were produced before the first Bitcoin halving process occurred in November 2012. This halving brought down rewards to 25 Bitcoins/block from 50 Bitcoins/block. The second halving took place in 2016, which further reduced the miners’ rewards to 12.5 Bitcoins/block.
Upcoming Bitcoin Halving and Implications
The next Bitcoin halving process will take place somewhere around in May, and this halving will take the rewards further down to 6.25 Bitcoin/block from the existing rate of 12 Bitcoin/block. The May month is predicted on the basis of the ongoing rate of Bitcoin mining, which is equivalent to mining one block every ten minutes. According to this rate, the next halving will take place in May 2020, although it is difficult to predict the exact date in the month of May.
One of the obvious implications of Bitcoin halving will be the rise in its prices as supply will be constrained, which should help its valuation to rise. Many cryptocurrency analysts are of the opinion that halving the rewards is a positive step in the direction of Bitcoin’s valuation, although projecting the magnitude of the rise in Bitcoin’s price is anybody’s guess. A positive and highly optimistic prediction has come from the co-founder of Fundstrat Global Advisors, Thomas Lee who said that Bitcoin prices could gain as much as 100% in the year 2020. The firm has taken into account a host of factors to predict this steep rise in Bitcoin’s prices which includes the upcoming Bitcoin halving event, among others.
According to the prediction of analysts at Bloomberg, Bitcoin is expected to reach new heights of valuation in the year 2020. Experts predict that Bitcoin halving is going to be one major reason behind the price rise of Bitcoin, and clouds of uncertainty over various geo-political issues are going to help Bitcoin post strong results.
Many experts are also giving credence to the prediction of Hal Finney that Bitcoin would be worth $10 million, although not all are convinced about his prediction. Still, according to Adam Back, the founder of Blockstream, Finney’s prediction can’t be ruled out in entirety. It might be possible for Bitcoin to reach new heights of valuation reasons behind the ascent of Bitcoin could be different from the ones envisioned by the Finney.
Despite striking a congruence note on the rise in the valuation of Bitcoin, the jury is still out whether the adoption of Bitcoin and other cryptocurrencies will be able to achieve new heights in this year. We are getting mixed signals on the cryptocurrency adoption front – masses are increasingly patronizing digital coins and using them for all the regular purposes that are usually accomplished with the Fiat currency, but the governments and federal authorities across the world continue to remain a cause of concern for the crypto industry.
It will be interesting to witness how the year 2020 will pan out for the future aspirations of the cryptocurrency and blockchain industry. Bitcoin halving is sure to providing impetus to the value of this digital coin as supply is going to be put under the leash with rewards getting halved further.