Bitcoin Halving – BIDITEX Exchange
One of the most important characteristics of Bitcoin is that there’s a cap on the number of bitcoins that will ever be in circulation. The creation of new bitcoins is predictable and transparent to everyone. This is different from the traditional banking sector, where central banks can keep printing more money, almost without limitations.
As all we know, there will be a limited amount of bitcoin. In total there will be 21 million, to be exact 20,999,999.9769 bitcoin. The cap in the circulating supply is predetermined and enforced by the Bitcoin protocol. The coins will be released in a predictable tempo, by means of block rewards.
As we know when miners do their work, they receive an amount of bitcoin as a reward. Miners maintain and secure the bitcoin network, mainly by adding new transaction-filled blocks to the already existing chain of blocks, the blockchain. It’s crucial and important work, which is why it is rewarded.
An important term in the world of bitcoin that concerns the limited supply is the so-called block halving. What is a block halving? And why is it important?
What is a block halving?
The bitcoin block halving is the moment that the miner reward per block is divided by two. This halving takes place every 210,000 blocks. Mining one block takes ten minutes on average, so it can be estimated that there is a bitcoin block halving approximately every four years. This continues until 21 million bitcoins are circulating.
What does the bitcoin block halving mean for miners?
Creating bitcoin is expensive, but miners can make a profit when their income, the block reward, exceeds the costs. These costs include energy bills, equipment, and insurance for the equipment.
The bitcoin block halving can be predicted, so miners know precisely to the day when the reward in bitcoin is halved. In that respect, the block halving provides some certainty for miners. But there is also uncertainty. The computing power on the network has been unstable for years, just like the delivery time of mining equipment.
It may sound as if the miners receive less income after the halving, but halving the reward in bitcoin does not necessarily mean halving the reward in euros or dollars. Does the demand remain constant and is the supply growth slowing down? Then the price can rise in the future. But the role of transaction costs can also become greater. In this way, miners still receive sufficient compensation for their work.
What happens to the bitcoin price after a block halving?
After a block halving, the amount of bitcoin a miner receives when he finds a block gets halved. When the very first block was mined, the reward was a staggering 50 bitcoin, although the market value at that time was nearly zero. After the first halving, the reward was reduced to 25 bitcoin, and the current reward per block is 12.5 bitcoin. The corresponding value in a fiat currency such as the dollar or euro is different at any given time, depending on the bitcoin price.
Some traders believe that a bitcoin block halving affects the price directly. The first halving took place in 2012. A year later, bitcoin reached a provisional all-time high. The same thing happened a year after the next halving, in 2017.
What happens after the last block halving ever?
After the last bitcoin block halving, miners will no longer receive a block reward. By this time they will only earn bitcoins through transaction costs. This means transaction costs will play a bigger role in the future.
Perhaps smaller transactions will take place on this second layer in the future. The transaction costs for sending coins on the Lightning Network aren’t high, which ensures affordable transactions in the future.
But this is all in the future; we won’t even experience the last block halving ourselves. It is estimated that the last (piece of) bitcoin is mined in the year 2140.
Published at Mon, 10 Feb 2020 23:12:43 +0000
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