Bitcoin halving refers to the number of bitcoin being rewarded to the miners for contributing to the blockchain transactions being cut in half. In general, it is an event where the number of bitcoin rewards per block in the chain is halved.
The theory of halving works in accordance with the chain reaction that flows in a vicious circle. When the reward is halved, inflation gets halved too. It further lowers the available supply. It increases the demand resulting in higher prices.
In this entire chain system, the incentive rewarded to miners remains significant as the overall prices for the bitcoin are increased. If in case the halving does not result in an increment in demand and price, which in turn ideally would not generate reward as an incentive to miners.
Thus, to ensure incentives to miners bitcoin community reduces the complexity of the mining process and eases out the transactional process. This results in more mining of bitcoin and ultimately creates the balance. So far this process has been proved successful twice.
Importance of Bitcoin Halving
- The monetary policy of Bitcoin intends to distribute 21 million bitcoin over the years by 2024.
- Since bitcoin cannot be inflated at will or by any organization, unlike fiat currencies that are regulated by the government.
- Therefore, such a policy is adopted by the Bitcoin community for economic stability in the crypto ecosystem.
- Precisely speaking bitcoin is basically designed to impersonate the attributes of gold.
- The way supply of gold varies with the amount mined from the earth & over the span of time becomes scarcer.
- Similarly to replicate the similar scenario of Bitcoin’s scarcity this method of halving is adopted.
- The process of halving strengthens the existing cryptocurrency, Bitcoin which in turn prevents the additional introduction of unnecessary currencies in the market. To date, there is 18.38 BTC.
- Bitcoin being the deflationary currency can prove to be a powerful tool to hedge against inflation structured process of halving.
The trend so far about Bitcoin halving
This phenomenon takes place every 4 years to ensure monetary balance in the ecosystem. The last bitcoin halving was done on November 28, 2012, when the price of bitcoin rose from $11 to $12. Accordingly, on July 9, 2016, the prices jumped from $576 to $650.
Similarly, the rising pace still continued as on May 11, 2020 prices surged from $9,500 to $9,820. After halving has been completed the prices take their normal pace.
The block reward reduction was witnessed as – In the first phase of halving in 2012 50 BTC was halved to 25 BTC, while in the year 2016 subsequently 25 BTC halved to 12.5 BTC and further this BTC to 6.25 BTC in the year 2020.
Thus, there has been an upward movement in the pace of halving results and profit generation which is believed to continue until the necessary steps to maintain the scenario are adhered to.
Does the problem still persist?
Undoubtedly yes, the basic loopholes attached with the bitcoin as a monetary value can be witnessed even after a decade of introduction of the concept. Further, these gaps get reflected with the Bitcoin halving too.
- Mining Inefficiencies: The mining process of halving requires huge energy for further algorithm solving to make halving a successful process. Thus, if the process does not yield many rewards it would ultimately create instability for the miners to stand by the competition with such heavy cost involvement.
- Thus, the miners are expected to ensure network upkeep by taking into consideration the hash as well.
- Lack of scalability: By now the scalability issue of Bitcoin is widely known which weakens the format of Bitcoin as a payment mode despite halving been undertaken.
- No stagnant framework: The unpredictable framework can prove out to be the point of concern as being an open-ended currency; no authority is bound to regulate its framework.
- Thus, the legally robust framework is the need of an hour to ensure consistent success.
Expected Analysis of Bitcoin Halving 2024
The fourth phase is likely to take place between March –June in the year 2024 for reward reduction from 6.25 BTC to 3.125 BTC. With due consideration to the ongoing scenario where halving results in demand and price rise for the BTC.
However, each block size is limited to 1 Mb which limits the transaction in the blockchain but increases the competition and transaction fees.
Therefore, it is expected that even by next halving the Bitcoin’s demand and prices would soar high owing to the following reasons:
- Absence of new coins: The awareness about no injection of new Bitcoin into the crypto market by now is the talk of the town. This fundamental understanding of BTC would eventually appreciate its overall demand as it is backed by scarcity.
- Use cases: The stretched use cases are expected to increase their transactional volume which might result in increased fees as well.
Conclusion
The precise prediction about the future is completely impossible only certain assumptions can be provided on the basis of market study and research. So far, the market has matured to understand the ongoing scenario, the public awareness about the crypto market and its procedures have been widely accepted. It makes individuals trade efficiently on the conceptual market. Yet more opportunities, trends, and alternatives need to be cautiously considered before each confident step.
