Bitcoin (BTC), the first cryptocurrency by popularity and market capitalization, was created with a unique feature in mind that is today encountered in many other cryptocurrencies, such as Binance Coin (BNB). Its developer, Satoshi Nakamoto, designed it to meet a finite supply limit of 21 million, after which no more blocks will be introduced to the network, and no more Bitcoins will emerge. The reasoning behind this rule is to maintain the asset’s scarcity and anti-inflationary properties.
By examining the price of Bitcoin, one can conclude that the market is witnessing bullish momentum, and the same is true for the top cryptocurrency competitors. As a result, more investors are expected to add the leading digital coin to their investment portfolios in the near future. As a result of the improved values, many individuals are also engaging in other money-making ventures besides investing, HODling (holding the asset long-term), and trading, namely mining. They’re getting powerful rigs to mine Bitcoin as the prospects are favorable, and the market is on a recovery path.
Next year’s halving is projected to result in a 30% decline in the computational power necessary to add Bitcoin to the network. What the event means for investors and miners alike is debatable, and more outcomes are expected to result.
So Far, There Are Almost 19.5 Million Bitcoins in Existence
Only 19.5 million bitcoins out of 21 million have been introduced to the world so far, leaving the remaining 1.5 million waiting to be mined. This limit is expected to be reached over the following century, somewhere around 2140, though the date is flexible. Furthermore, the exact 21 million Bitcoin will likely never be attained because the supply is never explicitly specified. Another possible reason why the asset won’t hit that level is linked to the fact that consistent bugs in the network lead to the loss of Bitcoins over time, which are never recovered.
Roughly every four years, miners add 210,000 blocks to the network. This triggers the depletion of the halving to preserve Bitcoin’s anti-inflationary properties and maintain scarcity.
The Purpose Behind Halving
Fully understanding Bitcoin’s halving necessitates grasping how the blocks are created in the first place. Bitcoin blocks result from an energy-demanding mining process utilizing high-priced, powerful ASICs and GPUs. Miners complete what can be regarded as complex mathematical equations in order to complete the mining process and add blocks to the blockchain. As a final step of the completion process, miners must spot the triumphant block.
When the mining process is completed, miners are rewarded with 6.25 bitcoins. The halving will cut their incentives in half, meaning they will receive 3. Bitcoin’s price is currently hovering above the $3.000 mark, meaning the award received is worth around $180.000.
This regular event occurs roughly every four years on an inexact date that’s established depending on the time the number of necessary blocks is added to the blockchain. This is a pre-established rule in Bitcoin’s protocol, and unless a change is made in Bitcoin’s protocol, miners won’t be able to create any more blocks after the finite supply is reached. Bitcoin’s following mining will put miners to the test, as Bitcoin’s halving event cuts miners’ reward for generating blocks by half. The more halvings occur, the harder it will be to mine Bitcoin. This means that more miners will put their expensive rigs aside as mining will no longer be profitable. They’ll be left with transaction processing fees as the only source of Bitcoin-related income instead of a mix of transaction fees and mining incentives.
Plus, the mining difficulty level changes twice a month or once every 2016 blocks are added to the network. This difficulty adjusts automatically depending on the number of participants joining the network. The more miners enter the network, the more difficult it is to mine.
How the Halving Event Will Affect Bitcoin’s Price
One of the most burning questions surrounding halving events has always revolved around the price implications of the reward-chopping procedure. On the one hand, there are bold predictions and optimistic opinions backed by analysts who believe the price may skyrocket, likely revolving around $180,000. On the other hand, investors may encounter opposite assumptions on the other side of the coin.
What is certain is that it is impossible to guess or predict how the reached limit will affect the asset’s price, especially given how volatile the market is. What an investor can do, anyway, is look at how the asset behaved before and after the past halvings.
The event is seen with good eyes regarding the price. Historically, the event is surrounded by high price volatility, which adds a layer of mystery for investors. But looking at past performances around the time of the halving, one can conclude that rising prices and bullish momentum surrounded the event.
Bitcoin Mining Computing Power is Expected to Decline by Nearly 30%
The halving usually reduces the computational power consumed by miners, as their rewards are significantly diminished. The following reward-reduction event is anticipated to result in a 15%-30% decrease in computing power used for mining bitcoins. Computational power, or hash rate, will drop as this activity becomes unprofitable. The decreasing rewards are off-putting for miners, pushing many to toss aside their computers and turn to other income-generating gigs. Opinions are split, and nothing can predict how much mining power will drop. But the expense of mining Bitcoin approximately doubles when rewards are halved, which is enough reason for many miners to shut their machines off.
The overall Bitcoin computational power consumed to mine blocks is expected to decrease by 30%. While no one can predict or assume where the prices will go from that moment on, one thing is sure. The decreased energy usage resulting from the reward-cutting process’s completion will reduce the overall energy consumption directed to mining Bitcoin, which will only be good news since Bitcoin’s creation process is already criticized for being energy-greedy. However, at the moment, over 50% of the Bitcoin mining power comes from renewable resources like hydro, wind, and solar energy.