Bitcoin halving has been the hot topic in the cryptocurrency world, mainly due to its connection to Bitcoin price development. But what exactly is Bitcoin Halving and how to prepare for it?
The truth is that Bitcoin halving can bring a lot of value to cryptocurrencies like Steem and all the others.
Every 4 years on average (210,000 blocks), the reward granted to Bitcoin miners for attaching a block to the blockchain is split in half. Bitcoin halving was created to maintain Bitcoin inflation.
Bitcoin Halving - What Does It Mean?
In Bitcoin, halving occurs when mining rewards are split in half. Bitcoin halving occurs at periodic intervals of 4 years. The term Bitcoin Halving refers to block rewards, which miners receive if they find a valid block.
In the case of Bitcoin, it occurs every 4 years, to be exact after every 210,000 blocks. Since the average mining time of the blocks in Bitcoin is 10 minutes, it reaches 2,100,000 minutes, which is exactly 4 years. The last halving took place on July 9, 2016 in block number 420,000. Block # 419,999 still had a 25 bitcoin bounty, but from block # 420,000 miners now receive only 12.5 Bitcoins per mined block.
One of the most noteworthy features of Bitcoin is that there is a limit to the amount of coins that will be in circulation. This means that everyone already knows how many Bitcoins there will be. This is different from the traditional financial system, where central banks can print money infinitely.
To know what Bitcoin Halving is, it is important first to know the basics of Bitcoin mining. In short, new Bitcoins are a prize to miners whenever they use their equipment to mine a block in the network.
How to prepare?
As these new currencies are created it means that the money supply increases by a projected amount, and this does not increase inflation. The theory is that if the money supply grows at the same rate as the number of people using it, prices remain stable. If it does not grow as fast as demand, there will be deflation and the first to buy cryptocurrency will see its value rise. Coins need to be originally allocated somehow, and a fixed rate looks like the most appropriate formula. Satoshi is a genius for being able to apply this simple theory to cryptocurrencies.
The basic rule of the market is that supply and demand dominate the market. If demand remains the same, an increase in supply theoretically lowers the price. This means that if demand remained constant, the price would have to decrease more slowly after halving (supply growth will be halved).
However, fluctuating demand driven by market sentiment is what really influences price. There is a general belief that reducing supply increases price. The so-called stock / flow rate seems to leave no doubt that there is a connection between decreasing Bitcoin's mining reward and rising price. This is seen as a major incentive for price hikes and this view is widespread among news portals, which naturally increases demand as everyone wants to profit from the supposedly safe price increase. The prophecy is fulfilled.
It is worth mentioning that an important indicator for the high expectation generated by Bitcoin halving will be Litecoin's future price development, which halved in August. If Litecoin's price continues to rise, it will fuel hype around Bitcoin. But if there is a devaluation, it may affect the collective belief in supply and demand theory, because as we reported earlier what really “controls” the cryptocurrency market, it is the emotions and collective psychology of market participants, not some theories. from the market. But it should be noted that Litecoin is just an "altcoin" and it may be that its price development is not so relevant to investors, but it is good to keep an eye.
Remember that in the last halvening, the price of Bitcoin really did not have a significant increase. However, some blame the 50% price increase (from $ 435 to $ 645) in the three months prior to halving. In addition, the overall hash rate (the total computing power running the Bitcoin network) remained the same. This suggests that miners did not turn off their devices with the information of earning fewer rewards, something many had imagined would result.
Anyway, now you understand what Halving is and why there is no reason to freak out. You can accurately check when the next will occur at this countdown timer.
Good luck for all of us!