BITCOIN HALVING CYCLE
The Bitcoin halving event is one of the most important events in the blockchain industry. New supplies of Bitcoin and the price for mining them are cut in half. However, each halving event generally reduces inflation as well as pushes the price of Bitcoin upwards.
Bitcoin mining is simply a process of verifying and recording new Bitcoin transactions. Bitcoin transactions are validated digitally on the Bitcoin network and added to the blockchain ledger, thereby new Bitcoins are entered into circulation.
Mining is performed using sophisticated hardware that solves extremely complex mathematical problems. To complete the mining process, miners must be the first to arrive at the correct or closest answer to the question. Some miners however may agree to cooperating and sharing block rewards in proportion to contributed mining hash power. These groups are known as Mining pools; F2Pools, ss and BTC.com are examples of such pools.
Mining however, is a task that requires high computing power. Therefore it is a very costly task in regards to equipment and electricity requirements. The computer hardware required is known as application-specific integrated circuits, or ASICs, and can cost up to $10,000. Other mining hardware like WhatsMiner M30S++ cost as much as $4000.
The Digiconomist’s Bitcoin Energy Consumption Index estimated that one Bitcoin transaction takes 1,449 kWh to complete or the equivalent of approximately 50 days of power for the average US household.
WHAT IS BITCOIN HALVING?
A Bitcoin halving is an event where the rewards for mining new blocks are cut by 50%. This means that miners receive fewer rewards for verifying transactions on the blockchain.
After every 210,000 blocks mined, or roughly every four years, the block reward given to Bitcoin miners for processing transactions is cut in half.
Bitcoin halvings are important events for traders and Bitcoin investors because the number of new Bitcoins being generated by the network will be reduced. This limits the supply of new coins, so prices could rise if demand remains strong.
WHY DOES BITCOIN HALVING OCCUR?
Bitcoin halving ensures that the amount of Bitcoin that can be mined with each block decreases, making Bitcoin more scarce, and ultimately, more valuable. Bitcoin has a market cap of 21 million Bitcoins. Once this 21 million has been successfully mined, Bitcoin mining will cease.
Bitcoin halves under the design of its creator, the mysterious Satoshi Nakamoto. This anonymous person or group never explicitly explained the reason behind the halving, however experts speculated that the system was designed to distribute coins more quickly at the beginning to encourage people to join the network and mine new blocks. Therefore block rewards were programmed to halve at regular intervals because the value of each coin rewarded was deemed likely to increase as the network expanded.
Bitcoin miners are encouraged to mine by the price increase of Bitcoin after every halving. On the contrary, if the price of Bitcoin doesn’t increase and block rewards are halved, miners may lose the incentive to mine more Bitcoins. This is because mining Bitcoin requires high amounts of computational power and electricity and can be a costly process.
EFFECTS OF BITCOIN HALVING
Parties that are affected by this event include; Investors, Miners, and even ordinary traders.
The price of Bitcoin has risen steadily and significantly from its launch in 2009, when it traded for mere pennies or dollars, to April 2021 when the price of one Bitcoin traded for over $63,000.
History has shown that Bitcoin’s price rising significantly after each halving. Investors and Traders have taken advantage of this trend to hoard Bitcoin prior to each halving event.
HOW TO PROFIT FROM BITCOIN HALVING CYCLES
In the past, these Bitcoin halvings have correlated with massive surges in Bitcoin’s price. The first halving, which occurred on Nov. 28, 2012, caused an increase from $12 to $1,207 by Nov. 28, 2013. The second Bitcoin halving occurred on July 9, 2016. The price at that halving was $647, and by Dec. 17, 2017, a Bitcoin price had soared to $18,972. The price then fell over the course of a year from that peak to $3,716 on Dec. 17, 2018, a price about 575% higher than its pre-halving price.
To take advantage and profit from this knowledge would be to accumulate Bitcoin close or near to its absolute bottom in this cycle.
One aspect to consider when thinking about if Bitcoin’s price is going rise with the upcoming halving is to consider that many traders and investors are already in the process of accumulating large amounts of Bitcoin’s and holding onto it in anticipation of its price rising with the halving.
The next Bitcoin halving is likely to occur in April 2024 and will certainly have a dramatic impact on the cryptocurrency’s price.
