What is bitcoin halving?

4 months ago
What is bitcoin halving?
What is bitcoin halving?

Halving is a halving of the reward to miners for adding a new block to the blockchain. Satoshi Nakamoto programmatically laid out halvings on the bitcoin network every 210 thousand blocks, that is, every 4 years - until the moment when with the extraction of 21 million coins (presumably in 2140) the cryptocurrency emission will be completed.

How many times have halving been done?

In the Bitcoin network, halving was carried out twice: November 28, 2012 and July 9, 2016. If at the beginning of the history of bitcoin miners could earn 50 BTC for adding a new block to the blockchain, then after the first halving, their remuneration decreased to 25 BTC, and after the second - to 12.5 BTC.

When will the next halving happen?

Given that miners add a new block to the network approximately every 10 minutes, the next halving at block 630000 can be expected in May 2020. It will reduce the reward to miners to 6.25 coins.

Why do we need halving?

The main task of the halving is to control the emission of cryptocurrency and curb its inflation.

Even before the first halving took place in 2012, the creator of Ethereum Vitalik Buterin explained his need by comparing bitcoin with gold: “Gold reserves in the world are limited, and with each gram mined it becomes more and more difficult to get the remaining gold. As a result of such a limited supply, gold has retained the value of an international medium of exchange and accumulation for more than six thousand years, and there is hope that Bitcoin will do the same. ”

How does halving affect mining and miners?

To ensure the stability of the network, the creator of bitcoin provided that, with a decrease in mining activity, its complexity also decreases. If, after halving, some of the miners consider the extraction of coins unprofitable and refuse it, and the hash of the network decreases, then the mining difficulty indicator will go down. This means that the intervals at which new blocks are added to the blockchain will remain the same, and the transaction processing speed will not suffer from the departure of a number of miners.

In addition, the profitability of bitcoin mining is also affected by the price and volume of transactions in the network: if these indicators are high enough, the negative effect of a decrease in remuneration for miners will be less pronounced.

How does halving affect the price of bitcoin?

The first two halvings in the bitcoin network were accompanied by increased coin volatility over the next 1-1.5 years: the price of an asset could rise from $ 11 to $ 1100 or from $ 230 to $ 20,000 - and fall 5 times. Regarding the influence of the third halving on the price of the flagship cryptocurrency market, expert opinions were divided. Some expect growth, others expect no significant changes.

Digital Asset Research believes that in May 2020, bitcoin could rise to $ 60,595 per unit. The assumption is based on an analysis of the behavior of the price of bitcoin in cycles between previous halvings. It turned out that at the end of the cycle, it grows due to an increase in demand for cryptocurrency and reaches peak values ​​in the first third of the cycle, each time rising to a new historical maximum. Researchers believe that if the model they identify is repeated, a new peak in bitcoin prices will fall in September 2021, and with the next halving in 2024, it will reach $ 732,256 per unit.

The German bank Bayerische Landesbank came to the conclusion that the upcoming halving will allow Bitcoin to approach gold in such an indicator as the ratio of stocks to growth (Stock-to-Flow, S2F). S2F for gold is 58 and by May 2020 it will not be much more, while for bitcoin it will increase from 28.5 to 53, which will make the coin possible at a price of $ 90 thousand per unit. If the model proposed by the bank’s specialists is correct, halving of 2024 will increase the strength of bitcoin to unprecedented in the history of mankind: a level of over 100.

On the other hand, analysts at Strix Leviathan, an American company, note that on the eve of halving, media are actively recommending users to hold bitcoins, and the rise in prices in this period can be explained by the illusion of an increase in the value of an asset amid growing speculation.

Can halving cause the "death spiral" of bitcoin?

Mining difficulty is recalculated once every two weeks - every 2016 blocks. That is why in the cryptocurrency they are afraid of situations when a temporary gap is formed between the falling hashrate and the next recalculation of the mining complexity, during which the bitcoin network can enter the so-called “death spiral”.

What it looks like: the complexity of mining remains high, the profitability of mining decreases - miners turn off their computing power, the hash rate drops, transactions in the network slow down.

However, blockchain expert Andreas Antonopulos believes that the death spiral is not threatened by the bitcoin network, since miners initially enter the crypto sphere with a long-term strategy and will continue to work in anticipation of a new recalculation of mining complexity and restoration of the usual network operation.