It is impossible that today you have never heard of cryptocurrencies.
Whether it’s news about Bitcoin or recommended people investing in Bitcoin, Cardano or the like, cryptocurrencies are already known worldwide.
They are known mostly as great investment opportunities, as long as you are well informed about the cryptocurrency in which you are going to invest, and at the same time aware of the risks of these.
The most accurate definition of cryptos is as follows:
“A cryptocurrency or crypto is a digital medium of exchange that uses strong cryptography to ensure transactions control the creation of additional units and verify the transfer of assets. Cryptocurrencies are a type of alternative currency and digital currency.”
How each cryptocurrency is controlled is through the blockchain, which serves as a database of financial transactions, but at the same time is decentralized(nowadays not only coins are decentralized, but also some of the markets- check this decentralized crypto exchange for an example).
To get into the central theme of this article (the Bitcoin halving and it’s impact) we must first know how these cryptocurrencies are “found”.
The Mining Of Cryptos
As is known, the governments of the different countries have a monetary system, which is responsible for printing the money, which is a completely legal method and is used for the acquisition of goods and services.
In the universe of cryptocurrencies, money is not created but has to be discovered, and this process is known as mining.
We can compare it with the gold situation.
Gold cannot be created as if it were banknotes, however, it can be “discovered” in mines, in the same way, it is being done with Bitcoins.
That is why the BTC is also known as “virtual gold”.
To produce the cryptocurrencies, the miners use certain types of systems that are based on very sophisticated algorithms, which aims to free blocks of coins.
After this, the cryptos will go into circulation.
What are Bitcoin halvings?
Now that we know what cryptocurrency mining is, we can move on to a slightly more complex issue, the savings.
Halving is a process in which some blockchains use a mechanism to reduce by 50%, or what is the same, half the rewards granted to miners.
This reduction of benefits is not carried out by any institution but is programmed directly by the Bitcoin software to establish how many Bitcoins will be released as the miners are creating blocks.
Another very important thing that we must point out, is that there is a limited amount of Bitcoins, they are not infinite as the tickets.
The amount set by Bitcoin software is 21 million, and as mentioned earlier, this software states that Bitcoins will be released as miners create blocks, at a rate of approximately 10 minutes.
This is a control mechanism, with the objective that Bitcoins are not distributed immediately since it is desired that the emission of Bitcoins can be controlled.
This issue generates that there are “new Bitcoins” in circulation (which is not in the literal sense, since as we said a while ago, there is a limited number of Bitcoins), a process which should not go through any institution.
Apart from that, it is an opportunity to prevent all Bitcoins from ending up in a few hands.
“The constant addition of a fixed amount of new currencies is analogous to that of gold miners who spend resources to add gold to the circulation. In our case, it is the CPU time and the electricity spent” – Satoshi Nakamoto
A very recurring question that users interested in cryptocurrencies ask themselves, is what would happen if halving did not exist?
This is a very interesting unknown.
If this process did not exist, there would be no more Bitcoins to undermine, and the miners would only receive small commissions for the transactions that were made, which would not be very high since Bitcoin could not have been revalued to the extent that it was profitable mining.
If there were no halving, we would only have needed a few years for all the Bitcoin to have been put into circulation.
In the beginning, only 50 BTC were distributed for each block, which would give a total of 300 BTC per hour, and 7200 per day.
An amount of 2,628,000 Bitcoins would be released annually. An amount that if we divide by the total bitcoins (21,000,000 bitcoins), gives us almost eight years the time it would have taken to put all the Bitcoins in circulation.
How Can Halving Affect The BTC Price?
There are several theories about it, but there is a very simple one.
It is reduced to supply and demand, if fewer Bitcoins are generated, the price by law will start to rise, such as bull run.
The calculations of all the halving have already been made, so, we already know how many Bitcoins will be awarded for each block from its beginning until they are finally finished. We are currently in the third halving stage of the thirty-four stages.
The last halving will already establish a zero reward or what is the same and what we mentioned a bit ago in this article, people who are mining Bitcoins will only charge transaction fees.
This will happen in block 6,930,000 which according to the calculations will be in the year 2140.
How often does a halving happen?
Approximately every 4 years.
The calculation of halving is very approximate since it has some complexity.
This is because it is impossible to predict how much time it will take to mine each block.
But something that has greatly facilitated this task, is that Bitcoin software can calculate the average time, and based on that time adjust our calculations.
There is a complexity readjustment of the mining process every 2016 blocks, and this is done to maintain that the time between each mining block which is always very close to 10 minutes.
So, so that the explanation is not tedious, we will establish that the blocks are always generated every 10 minutes, even if it is not so, but it usually gets very close.
Therefore we establish that six blocks are generated per hour and 75 Bitcoins that are put into circulation are added, then the miners will be able to put on sale the previously mined Bitcoins.
To perform the calculation of the halving process we will perform a simplified calculation with whole numbers.
We must multiply the 210,000 blocks by 10 minutes (interval between which the blocks are generated) and then divide it by 60 minutes.
Each halving process happens approximately every 35,000 hours, which is equivalent to 1,458 days, that is 4 years.
The Next Halving Of Bitcoins
Very recently, a newsletter was published, which reported that Jihan Wu, co-founder and CEO Bitmain, believes that the next halving of the BTC may not lead to a bull market, but the price of the currency will grow in the long term.
“There are many uncertainties, but now is a good time to invest in crypto mining. If I were a miner, I would not stop mining but continue to invest in mining equipment. We are currently in a short-term price correction. Having a long-term perspective is significant. If the price of Bitcoin remains unchanged after halving, the efficiency of the existing equipment must be improved to balance the efficiency and computing power “. – Jihan Wu
Also in the news, he explained that these markets move by cycles, and due to the current trend of Bitcoin, the next cycle cannot be bullish.