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Bitcoin Halving and its Impact on Bitcoin Value

It’s been more than a decade since the launch of Bitcoin. Over the years the revolutionary technology has undergone through a good and bad time, but overall it kept on going and changed the way how the world looks at digital currencies currently.

The motivation behind the creation of Bitcoin was to create a decentralized system that is not under the influence of central authority and is run by the very people participating in the network. For this reason, it was crucial to make a system that is safe and secure and provides maximum benefits to its users.

Before we jump into a discussion of what is Bitcoin Halving, let’s first briefly discuss what Bitcoin mining is and how it’s related to the halving events of Bitcoin.

What is Bitcoin Mining?
Since there is not a single central authority controlling the overall system, the network needs the users to take part in the processing and verification of transactions that are being made in the system.

When a user or node is successful in verifying a transaction using his computer, he is rewarded by the network in the form of Bitcoins. This reward is the result of computational power that was used by the network to verify the transaction and to add the block in the blockchain.

Bitcoin Halving
Bitcoin Halving is one of the most important factors when it comes to determining the future of Bitcoin.

So what exactly Bitcoin Halving is?

Bitcoin halving is an event or process that is programmed to take place over time in the Bitcoin network. Bitcoin halving results in the reduction in the number of Bitcoins that are being generated by the network.

When Bitcoin was launched the reward value, as a result of successful mining process was 50 BTC but to keep the Bitcoin valuable and an attractable digital asset, the system was programmed to reduce the reward value by 50 % after every 210,000 blocks or a period of four years.

In short, the halving is the programmatic reduction in the total number of Bitcoin that is being generated by the system. Over the years, in the year 2140, the generation of new Bitcoin will eventually stop, and the only Bitcoins that will be left will be the one that is already distributed and are in circulation.

The following chart explains how the supply of Bitcoin will decrease over the course of years.

Year

Block

Rewards in BTC

2009

1

50

2012

210,001

25

2016

420,001

12.5

2020

630,001

6.25

2024

740,001

3.125

……..

………

……….

2140

………

0 Bitcoins

Why is Halving Event Important for Bitcoin?
Bitcoin is also known as “digital gold”. This is because it has a fair share of properties that matches with the gold. The supply and demand concept of gold and Bitcoin is somewhat similar in its own way.

Over time the total supply of gold is decreasing, and for that reason, the value of gold is increasing. Similarly, as the supply of new Bitcoin is decreasing, it will result in increased value in the future.

In the start, it was easy to take part in the mining process, but over time as more people joined the mining process the computational requirements increased and thus the need of expensive and high-end mining hardware was created. Same is the case with gold; in the start, it was somewhat easy to be mined then it is now.

So if we summarize the “why” of Bitcoin halving, we could say that one of the core purposes of Bitcoin halving event is to keep the currency valuable for the users and ensure that it doesn’t decrease in its value like traditional and fiat currencies.

How Bitcoin Halving affects the price of Bitcoin?

Bitcoin halving is one of the primary catalysts that determines the price of Bitcoin. Although it might be too easy to say as we have seen only two halving events so far, but when we see the charts that show the value and the time at which first halving event occurred in 2012 and the second one is 2016, we could see that the price increased within weeks after the halving event occurred.

Yes, there are hundreds of other factors that could be the reason for the price of Bitcoin, but Bitcoin halving is by far one of the factors that directly impact the overall Bitcoin graph, and it has been proven in the past.

 

Written By Ranask Hurshid

 

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