Updated: Nov 7, 2019
The much awaited Bitcoin 2020 Halving will soon be upon us and here is everything you need to know.
Firstly let’s recap on Bitcoin mining.
Traditional Currencies like the dollar or euros are issued by central banks. These banks can issue new money at any time if they want, to adjust their economies, whereas Bitcoin has a predetermined amount of coins that will ever be issued.
The total number of bitcoins that will ever be issued is 21,000,000. They are currently released approximately every 10 minutes by the network.
Bitcoin mining is the process of solving complex mathematical problems using computer power to unlock these bitcoins. The network is designed to make it difficult to solve the problems and this means that the cost to mine a Bitcoin is high, therefore it should add value to Bitcoin as it is scarce and difficult to mine and the more miners involved in mining the harder the process of solving the problems and the higher the cost of mining. So Bitcoin is not made out of thin air it is produced from substantial investments in electricity and computer hardware. It is a similar process to gold mining its hidden and expensive to find.
What is a bitcoin halving?
A Bitcoin Halving or (Halvening) event happens when the mining rewards for new Bitcoins are reduced by 50%. This event occurs approximately every four years. The upcoming Bitcoin 2020 Halving will see rewards reduce from 12.5 to 6.25 for every block mined. These blocks are mined in 10 minute intervals so every 10 minutes only 6.25 bitcoins will be created. This is considerably less than when Bitcoin was initially launched, back then the rewards were 50 Bitcoins per block.
Bitcoins become twice as difficult to mine and therefore the cost of Bitcoin mining goes up, but the reward stays the same. In order to mitigate the extra costs Bitcoin miners will aim to sell the newly mined bitcoins at higher prices. As miners are the only source of new Bitcoins into the market they have a major influence over the price. Although they do not dictate the price, that is ultimately dictated by supply and demand.
Will the price of bitcoin rise significantly on or before the halving?
Many Bitcoin commentators believe that Bitcoin prices will increase dramatically in the run up or after the Bitcoin Halving event. All Bitcoin Halving events are different and bitcoin is very volatile and unpredictable so it’s impossible to know the effect. Jihan Wu the CEO of Bitmain one of the largest Bitcoin miners has recently stated that whilst he is confident in the long term prospects of Bitcoin, the Halving may not send the Bitcoin price higher. He states that In the event of lower prices, efficiencies will need to be made in mining equipment to keep the costs of mining down.
When is the bitcoin halving?
The estimated date of the Bitcoin Halving 2020 is sometime in May although due to increased mining activity it is very possible that the date could be slightly earlier.
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