Bitcoin is the top crypto amongst cryptocurrencies. Launched in 2009 the digital coin has grown from strength to strength. One of the unique aspects of Bitcoin is the process called ‘halving’. The event occurs around every four years and we are due a halving event this year (2024). In this article, we will look at why the Bitcoin halving is important. Here goes
What is Bitcoin Halving?
The Bitcoin blockchain, much like all blockchains is essentially a decentralised ledger. Think of it as a long list of transactions that cannot easily be altered. This list, rather than being stored on a single computer is stored across multiple computers across the globe.
Individuals called ‘miners’ validate and add new transactions to the blockchain ensuring that the list of transactions is correct. On successful completion of an algorithmic puzzle, Bitcoin miners are rewarded with free Bitcoins as an incentive for their efforts.
This reward to miners is halved every 210,000 blocks mined, resulting in a reduction of the total number of new Bitcoins generated.
Bitcoin halving dates:
- Nov 28th, 2012 block height 210,000
- July 9th, 2016 block height 420,000
- May 11th, 2020 block height 630,000
- Early 2024 estimated – block height 840,000
- 2028, 2032, 2036, 2040, 2044 – estimated
- 2140 – estimated final halving
Supply Scarcity
One of the significant effects of the Bitcoin halving and the reduction of new Bitcoin is supply scarcity. This scarcity adds to the perception that Bitcoin essentially operates as a deflationary asset.
Since the supply of Bitcoin is capped to a supply of 21 million Bitcoins, the diminishing supply reinforces the concept that Bitcoin is a finite resource, similar to precious metals like gold.
Market Dynamics
Supply and demand is a fundamental driver for market prices. As the rate of new Bitcoin creation decreases the increasing demand for Bitcoin can lead to upward pressure on the Bitcoin price.
Historically, the Bitcoin halving has been associated with large increases in the Bitcoin price. Speculators often see the Bitcoin halving as an opportunity to take advantage of.
Mining Economics
Since the Bitcoin halving directly impacts miner incentives this often results in miners having to adapt their operations to maintain their profits.
This often results in increased competition and innovation in mining technologies. Some miners may exit the market while others may find improved methods of running their businesses resulting in overall resilience to the Bitcoin network.
Market Sentiment
The Bitcoin halving event captures the attention of the cryptocurrency community and often leads to increased media exposure.
The resulting increased anticipation and speculation surrounding the halving can drive market sentiment leading to positive investor behaviour. The all-round positive sentiment can contribute to a bullish market, attracting new investors into cryptocurrency. In fact, Bitcoin’s halving can cause other cryptocurrencies (altcoins) in the market to rise too.
Final thoughts
The Bitcoin halving is an essential part of the cryptocurrency design. The scarcity caused by the halving reinforces the concept of Bitcoin acting as, ‘digital gold’ and a store of value.
Understanding the impact of the halving on the market and the price of the digital asset is critical for entrepreneurs looking to capitalise in the market.
Disclaimer: This article is for information purposes only and is not investment advice. Cryptocurrency can fluctuate widely in price and past performance is not always an accurate indicator of future value. Do your own research.
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***Disclaimer: This article is not financial advice and is given for informational and entertainment purposes only. Readers should conduct their own research and not invest more than they can afford to lose. Crypto is extremely volatile, and as such can drop in value considerably without notice. Pop Up World has a global presence and is not specifically targeting any jurisdiction with its content. Any crypto references are not intended for UK businesses or consumers. You should always seek legal advice to understand if the use or investment in crypto is allowed in your jurisdiction.
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