The supply of new bitcoins is about to be effectively cut in half in an event called a halving. Some experts believe this could help generate significant gains for the digital currency.
Dan Kitwood/Getty Images
hide caption
toggle caption
Dan Kitwood/Getty Images
The supply of new bitcoins is about to be effectively cut in half in an event called a halving. Some experts believe this could help generate significant gains for the digital currency.
Dan Kitwood/Getty Images
A big event is about to happen in the world of bitcoin: it’s called the halving – and some experts believe it will boost the digital currency’s rally.
Generally speaking, halving effectively reduces the supply of new bitcoins. And that should probably lead to higher prices. This is the principle of scarcity. The fewer bitcoins mined, the more bitcoin becomes valuable.
But will it be? And what does all this mean? Here’s what you need to know as the big day approaches.
What is halving?
First the name. Few in the crypto world seem to like the name halving.
But it effectively describes what is going to happen.
And it all involves Bitcoin mining.
Just like geological miners – from professionals to amateurs – who mine the earth to discover new diamonds or gold, Bitcoin miners must discover something hidden. They solve very complicated mathematical formulas to reveal new bitcoins. (Or in cryptographic jargon, “a block” is created and then added to a virtual public ledger of Bitcoin called a blockchain)
Whoever solves the formula first receives a pile of bitcoins as a prize. That’s why miners are trying to participate in this race by building the most powerful computer networks possible.
A “Buy Bitcoin Here” sign is displayed at a 7-Eleven store in Los Angeles on November 10, 2021. The extent to which halving contributes to bitcoin’s gains has been the subject of ongoing debate.
Mario Tama/Getty Images
hide caption
toggle caption
Mario Tama/Getty Images
A “Buy Bitcoin Here” sign is displayed at a 7-Eleven store in Los Angeles on November 10, 2021. The extent to which halving contributes to bitcoin’s gains has been the subject of ongoing debate.
Mario Tama/Getty Images
But the bitcoin reward that miners get for finding the solution is periodically cut in half. This formula was deliberately integrated into the computer code that makes up Bitcoin.
The number of bitcoins that can ever exist is also deliberately built into the system: the supply is capped at 21 million. So far, around 19 million tokens have been created.
And each time 210,000 formulas (or blocks) is resolved, a halving occurs.
Halving effectively increases the time it takes to reach that 21 million limit – and also tends to increase the value of Bitcoin.
The halving occurs approximately every four years, and the next one is expected to occur around April 19 or 20, although this is subject to change. So far, the halving has happened three times.
When bitcoin was first created, miners got a supply of 50 tokens when they solved the formula.
This figure was reduced to 25 in the first half in 2012. Then to 12.5 in 2016. And since 2020, it stands at 6.25 tokens.
And when the next halving happens in a few days, miners will only receive 3,125 tokens.
Will Halving Spark a Bitcoin Rally?
So far, that’s the case.
During each of the three previous halvings, bitcoin continued to rise by triple-digit percentage points over the ensuing year.
But whether the halving itself was the primary cause is up for debate.
This debate continues as the next halving looms. Bitcoin has already rallied ahead of the next halving, reaching an all-time high last month of over $70,000.
Some experts say there are other factors that will cause the price of bitcoin to rise this time around, halving it or not. The fact that there is growing adoption of Bitcoin, for example. And that traders are speculating more on bitcoin.
Additionally, major investment firms such as BlackRock have launched Bitcoin spot exchange-traded funds (ETFs) this year – or funds that track the price of Bitcoin. This has also led to increased demand for digital currency.
BlackRock unveiled its Bitcoin Spot ETF on the Nasdaq Exchange on January 11, 2024 in New York. The launch of these types of ETFs increases the demand for Bitcoin.
Stephanie Keith/Getty Images
hide caption
toggle caption
Stephanie Keith/Getty Images
BlackRock unveiled its Bitcoin Spot ETF on the Nasdaq Exchange on January 11, 2024 in New York. The launch of these types of ETFs increases the demand for Bitcoin.
Stephanie Keith/Getty Images
This halving – we think – therefore comes at a particularly good time for Bitcoin.
That’s not all: Bitcoin geeks hope that the excitement over the halving in 2024 will also lead to increased awareness and acceptance of the digital currency.
Will Halving Reduce Bitcoin Mining Energy Consumption?
This is another point of debate.
Mining Bitcoin requires an incredible amount of energy, although there is still some uncertainty about exactly how much.
Some believe the halving will force miners to use even more computing power to try to solve the formulas because they now get fewer bitcoins. According to this logic, miners will respond by trying to solve more formulas to obtain more tokens.
But this is controversial. Others argue that halving also forces miners to become more efficient, because the energy needed to power all those computers is expensive. For example, miners can use more renewable energy or turn to computers that can do more with less energy.
A technician inspects the back of bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec, Canada, March 19, 2018. There is also considerable debate over the impact of the halving on the amount of energy involved in the bitcoin mining.
Lars Hagberg/AFP via Getty Images
hide caption
toggle caption
Lars Hagberg/AFP via Getty Images
A technician inspects the back of bitcoin mining at Bitfarms in Saint Hyacinthe, Quebec, Canada, March 19, 2018. There is also considerable debate over the impact of the halving on the amount of energy involved in the bitcoin mining.
Lars Hagberg/AFP via Getty Images
Some believe that halving can even lead to less energy is consumed because some of the miners who can no longer compete will simply give up. Paying a lot for energy to get a little more than 3 bitcoin tokens will no longer make financial sense for them, according to this logic.
This is similar to what happened with oil extraction. As the supply of oil dwindles and fossil fuels become harder to extract, smaller players are withdrawing, unable to compete with the financial and technological resources of big oil companies.
Whatever happens, one thing is certain. There will still be an incredible amount of energy expended on unveiling bitcoin – and it will remain a controversial topic for some time.
News Source : www.npr.org
Gn bussni
