Thursday, 24 September 2020

How to be prepared for bitcoin halving?

Right now Bitcoin Halving is a big topic in the cryptocurrency world. Again and again, it is called in connection with the price development of Bitcoins. But what exactly is Bitcoin Halving and how to be prepared for it?
Every 4 years on average (210K blocks) the reward awarded to Bitcoin miners for appending a block to the blockchain is split in half. The Bitcoin halving was created by Satoshi Nakamoto to maintain Bitcoin’s inflation in line.

What does Bitcoin Halving Mean?

In Bitcoin, halving occurs when block rewards for mining are split in half. The Bitcoin halving occurs at periodic intervals based on the Bitcoin etiquette. The term Bitcoin Halving refers to the block rewards, which the miners get if they find a valid block.

In the case of Bitcoin, the Bitcoin halving takes place every 4 years, to be exact after every 210,000 blocks. Since the average block time in Bitcoin is 10 minutes, it comes to 2,100,000 minutes, which equates to exactly 4 years. The last Halving took place at block number 420,000, which was gained on July 9, 2016. Block # 419,999 still had a block reward of 25 bitcoin, while block # 420,000 gave the miner only 12.5 bitcoins.

One of the most notable characteristics of bitcoin is that there is a limit on the quantity of coins that will ever be in flow. The production of new bitcoins can be prophesied precisely and is clear to everyone. This is distinct from the banking system, where fundamental banks can print infinite money. To know what is Bitcoin Halving is, you must first know the fundamentals of Bitcoin mining. In brief, new Bitcoins develop into the cryptocurrency world as a prize for miners whenever they mine a block.

How to be prepared?

The point that new coins are created means the money supply rises by a projected amount, but this does not inevitably rise in inflation. If the supply of money grows at the same rate that the number of people utilizing it rises, rates remain constant. If it does not grow as fast as demand, there will be deflation and early holders of money will see its value rise. Coins have to get originally allocated somehow, and a fixed rate looks like the most suitable formula.

Market rules state that supply and demand dominate the market. If demand remains the same, an increase in supply theoretically lowers the price. This means that if demand remained constant, the price would have to decrease more slowly after halving (supply growth will be halved).

However, fluctuating demand driven by emotions and the psychology of market players in the crypto market is by far the dominant market power. There is a general belief that lowering the supply raises the price. The so-called stock-to-flow ratio seems to leave no doubt that there is a connection between the halving of the block reward and the rising price (whereby the growth of cryptocurrencies can also be attributed to the growing awareness level). This view is fairly unilaterally represented in the media, which of course increases demand, as everyone wants to profit from the supposedly safe price increase. The prophecy fills itself.

An important indicator for the Bitcoin Halving will be the future price development of Litecoin. If the cryptocurrency of the Halving continues to rise, it will fuel the Halving hype surrounding Bitcoin. If that is not the case and more likely to lose value, it could upset the collective belief in the stock-to-flow theory, which could take the wind out of the sails of the hype. Because if one governs the crypto market, then it is the emotions and the collective psychology of market participants, not some market theories.

During the last Halvening, the Bitcoin price didn’t really fluctuate. Although, some blame the 50 percent price rise (from $435 to $645) in the three months before the reward cut, with small risk of establishing causation. Apart from that, the network was moderately much routine. The overall hash rate (the total computing power running the Bitcoin network) stayed the equivalent. This suggests miners did not turn off their devices en masse in the information of earning fewer rewards, something many had hypothesized would result.

In any case, now you understand what The Halvening is, and why it’s nothing to freak out on. You can check on precisely when the next one will occur with this countdown timer.

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