As Bitcoin continues to soar in value, focus shifts towards its impending “halving” event and its potential impact on its current surge. Depending on one’s perspective, the halving is either a crucial occurrence that enhances Bitcoin’s value by reducing its supply, or merely a technical adjustment hyped by speculators to boost its price. But what precisely does the halving entail, and is it truly significant?
WHAT IS IT?
The halving is like a change in Bitcoin’s rules that slows down how many new Bitcoins are made. Bitcoin was made to only have 21 million coins ever. The person who created Bitcoin, called Satoshi Nakamoto, put the halving idea into Bitcoin’s code. This means that over time, the rate of making new Bitcoins gets slower. Right now, around 19 million Bitcoins have been made already.
HOW DOES IT HAPPEN?
Blockchain technology involves creating data records known as “blocks,” which miners sequentially append to the chain through a process called “mining.” Miners use computational resources to solve intricate mathematical problems, facilitating the construction of the blockchain and receiving compensation in the form of newly generated bitcoins.
During the halving event, the quantity of bitcoins allocated as rewards to miners is reduced by half. Consequently, mining becomes less lucrative, leading to a deceleration in the rate of new bitcoin production.
For a visual explanation of how blockchain works, click here.)
WHEN WILL IT HAPPEN?
There is no set date, but it is expected to take place in late April. The blockchain is designed so that a halving occurs every time 210,000 blocks are added to the chain. This means it happens roughly every four years.
WHAT ABOUT PREVIOUS HALVINGS?
There’s no evidence to suggest that previous halvings have caused bitcoin’s price to rise.
Still, traders and miners have studied past halvings to try and gain an edge.
When the last halving happened on May 11, 2020, the price rose around 12% in the following week.
Later in the year, bitcoin began a sharp rally, but there were lots of explanations – including loose monetary policy and stay-at-home retail investors spending spare cash on cryptocurrencies – for this and no real evidence the halving was behind it.
Reference: Reuters
