Bitcoin halving: the main event of 2024 in the world of crypto
Bitcoin has a unique feature known as halving. This is an event that occurs approximately every 4 years. Halving cuts the reward for mining Bitcoin in half. In May 2020, the third bitcoin halving took place, reducing the reward for mining bitcoin from 12.5 bitcoins to 6.25 bitcoins. In this article, we described why halving is a crucial event for the entire cryptocurrency world.
A bit of history
The Bitcoin protocol, developed by Satoshi Nakamoto, stipulates that the total number of bitcoins is limited to 21 million coins. This proposal was a solution to current problems with inflation, which often happens with fiat currency when central banks are forced to print more money. However, to prevent Bitcoins from being mined too quickly, Nakamoto came up with halving.
When Bitcoin was launched in 2009, the reward for mining a single block was 50 bitcoins. The first halving, which occurred in 2012, lowered that reward to 25 bitcoins, and the next halving in 2016 lowered it to 12.5 bitcoins. In 2020, the award dropped to 6.25 bitcoins, and the next halving is expected to occur in 2024, reducing the award to 3.125 bitcoins.
How does halving affect the first cryptocurrency?
The impact of halving on the bitcoin price usually generates a lot of discussion among investors and analysts. Several factors can affect the Bitcoin price as a result of halving:
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Limited supply Bitcoin has a maximum limit of 21 million bitcoins. Halving reduces the rate at which new bitcoins are mined, which reduces inflation and makes it a more limited resource. In theory, if the demand for Bitcoin is maintained or increased and the supply decreases, this could lead to an increase in price.
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Historical trend In the past, bitcoin halving has been associated with a price increase.
On November 28, 2012, the first halving took place. The reward per block decreased from 50 BTC to 25 BTC. After that, the cryptocurrency exchange rate went through several significant price changes. During 2012, bitcoin's value fluctuated between $4.5 and $14. A year after the halving, in December 2013, the price of BTC increased to nearly $1200.
On July 9, 2016, after the second halving, the reward dropped to 12.5 BTC per block. In 2016, the price of Bitcoin ranged from $400 to $900. In late 2017, the price of BTC peaked at $20,000.
On May 11, 2020, after the third halving, the reward dropped to 6.25 BTC per block. Throughout 2020, the price of Bitcoin fluctuated between $3500 and $12,500. In 2021, the value first soared to $61,000, then dropped to $31,000 before rising again to $67,000.
Expectations and psychological effects
Halving causes increased interest and attention to Bitcoin from the media and investors. It can also affect the rise in the price of the first cryptocurrency.
Halving is a key part of Bitcoin's economics to maintain its decentralized nature and inflation protection. This is one of the main advantages of Bitcoin over traditional currencies.
Why is halving necessary for Bitcoin?
One of the main reasons why halving is necessary is because the hash rate (total processing power) of the Bitcoin network is constantly increasing. This is because miners start using more and more powerful hardware as the market develops.
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When mining activity increases, the difficulty level of mining increases accordingly
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When mining activity decreases, the level of mining complexity also decreases
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Because of this, the blockchain implements two key functions:
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Regular addition of new blocks occurs at regular intervals (every 10 minutes).
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The efficiency of transaction processing doesn’t suffer despite the mass exodus of miners.
Conclusion
It is important to note that the price of Bitcoin is difficult to predict as it depends on many factors. Supply, demand, macroeconomic situation, regulation, and even geopolitical factors. Halving is just one of the many factors that can affect the Bitcoin price. Either way, 2024 will be the most significant year in Bitcoin history, so stay tuned for updates with the EXBI team.