What Is Bitcoin “Halving”? How Does It Impact Cryptocurrency Markets?

RIO DE JANEIRO, BRAZIL – A topic bruited almost a year ago, the so-called Bitcoin “halving” is scheduled to take place on May 12th. Athough this event is provided in the cryptocurrency’s protocol, it is still not understood by all investors.

Halving is an adjustment that occurs in the Bitcoin network that cuts in half the rewards of miners, leading to a drop in the supply of new cryptocurrency. This guarantees the asset’s deflationary feature.

Mining is a process in which computers are used to generate new Bitcoins. This is done using processing power to solve complex mathematical problems to complete each block where the Bitcoin network information is located, thus creating a “blockchain”.

These computers are called miners and for each block they complete, they are rewarded with new bitcoins; this is how new coins are created.

According to the rules established in the creation of Bitcoin, there is a scheduled adjustment in this reward, which is reduced by 50 percent after every 210,000 blocks have been created. This is halving, which should occur every four years, and should occur next week.

This is the third time that halving occurs. Initially, the reward was 50 bitcoins for each block; today, after two halvings, it is 12.5 bitcoins, and it will soon be 6.25.

There will be a total of 32 bitcoin halving events; once they all happen, there will be no more halvings and no new bitcoins will be created. The forecast is that in 2140 the last of the 21 million bitcoins that will exist will have been mined.

Based on basic economics principles, as the supply of new bitcoins will be reduced and demand will tend to at least be maintained, there will be an upward pressure on the price. Nevertheless, experts are divided on the extent of this impact.

In the first halving, in November 2012, the bitcoin was trading in the US$12 (R$60) range, rising to over US$1,000 a year later, with a large increase in trading volume.

In the second adjustment, in September 2016, the bitcoin was below US$700, rising to what was its maximum of about US$20,000 a year later. Today the bitcoin hovers around US$7,500.

Experts are now trying to understand whether the impact will once again double the price of Bitcoin; some project that in 12 months we will see a new historical maximum for the cryptocurrency, albeit this is not unanimously agreed among assessments.

Source: InfoMoney

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