You may have heard of something called a Bitcoin ‘halving’ occurring this year. In May 2020, Bitcoin went through its third halving, and its reward value dropped from 12.5 to 6.25 BTC per block mined. This essentially means that the reward for mining a block was cut in half yet again.
But how does this work?
In a centralized economy, the central bank is responsible for controlling the supply of money. However, in the case of cryptocurrencies like Bitcoin, there is no such centralized authority to control its monetary base. This necessitates that Bitcoin as a cryptocurrency must have its own mechanism to ensure a controlled supply.
This is where the concept of Bitcoin halving (or ‘halvening’) comes in. After every 210,000 blocks that are mined, the reward awarded to miners for every block gets halved. As a result, new bitcoins are released into circulation at only half the rate as compared to before that. (This is distinct from a coin burn – a mechanism that other cryptocurrencies apply to manage inflation)
Therefore, this controlled release of bitcoins helps maintain a synthetic form of Bitcoin inflation. This halving would continue till all the bitcoins have entered circulation, and after that, miners would be rewarded with the fee that network users will pay for processing transactions.
Why is Bitcoin Halving Important for Cryptocurrency Investors?
Is there any significance of this phenomenon for cryptocurrency investors? This is easier to understand when we notice the patterns that are set off by a halving event. When a halving occurs, bitcoins’ supply decreases, and the consequent higher demand leads to a rise in Bitcoin prices. And quite clearly, Bitcoin halvings in the past have resulted in a dramatic rise in Bitcoin prices, only to drop later. Let’s have a look.
- The First Halving
In November 2012, the first Bitcoin halving took place, halving the reward for mining from 50 to 25 BTC. The consequent effect on the prices saw a surge of about 8000% in the year that followed.
- The Second Halving
The second such event occurred in July 2016 when the reward was halved from 25 to 12.5 BTC, and as a result, Bitcoin prices surged by nearly 1000%.
- The Third Halving
The events of May 2020 have again led to an all-time high in Bitcoin prices, nearly reaching $20,000 in November 2020.
Therefore, crypto investors can make use of this knowledge in various ways. Understanding the market fluctuations – price rise followed by a drop – is important for anyone who intends to make gains from these market movements. At the same time, it is also important to understand the effects of other global situations, such as the ongoing pandemic, to figure out whether all halvings will necessarily result in similar price movements.
For bitcoin miners, understanding the halving of the mining reward with respect to increasing value is essential. For example, if the third halving was expected to reduce the Bitcoin inflation rate from 3.6% to 1.8%, then these changes are relevant to how the gains would be calculated. The operational costs of mining, such as hardware, electricity, etc., are estimated at $6,851 by Bitcoin.com. This corresponds to a 30% margin because 70% of the block rewards would have to be sold to cover the operational costs. So if the halvings push up the Bitcoin price but not by much, then it is not a great investment for miners (while being great for investors).
For new investors, Bitcoin halving presents a great opportunity to understand the cryptocurrency domain and begin making investments.
Conclusion
Crypto investors, particularly those holding Bitcoins for sufficient duration to make gains, can benefit greatly from such halvings. For a volatile asset, such a pattern that has occurred thrice so far seems fairly consistent.
With the next halving expected in another 4 years, it remains to be seen whether the price-boost pattern is set in stone or simply happens to coincide with other market forces.
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Frequently Asked Questions
Is Bitcoin Safe And Legal In India?
In 2020, the Supreme Court of India lifted the RBI’s restrictions on cryptocurrencies. According to the Supreme Court, the existence of Bitcoin or another cryptocurrency is unregulated but not unlawful. The verdict has greatly aided the world of digital money in the country. To put it another way, investing in Bitcoin is perfectly legal, and you may do so through various apps and traders.
What Is The Safest Cryptocurrency To Invest In?
Bitcoin has had the highest market capitalization, has been around the longest, has the most experienced development team, and has enormous network impact and brand recognition. As a result, while trading cryptocurrencies, the rate of return on Bitcoin is commonly used as a benchmark. However, the risks associated with cryptocurrencies remain, and the safest cryptocurrency for you depends on your analysis.
Is Bitcoin Legal In India?
In India, Bitcoin is not illegal. Because of cryptocurrency's rapid evolution, policymakers and regulators seemed to have recognized the chance to accept the new technology early. From the infamous 'RBI ban' in 2018 to reports of an impending bill banning cryptos in 2021 that has yet to develop, India has seen its fair share of ups and downs when it comes to Bitcoin regulation. Last year, the Supreme Court Of India approved the use of Bitcoin throughout the country. According to the Supreme Court, the existence of Bitcoin or any other cryptocurrency is unregulated but not unlawful.
How To Make Bitcoin?
Bitcoin mining is not just the process of putting new Bitcoins into circulation, but it is also an essential part of the blockchain ledger's upkeep and development. It is carried out with the assistance of highly advanced computers that answer challenging computational math problems. Miners are rewarded for their efforts as auditors. They are in charge of ensuring that Bitcoin transactions are legitimate. Satoshi Nakamoto, who is the founder of Bitcoin, innovated this standard for keeping Bitcoin users ethical. Miners help to prevent the "double-spending problem" by confirming transactions.
How Does Bitcoin Work?
The blockchain, a distributed digital ledger, is what Bitcoin is based on. As the name suggests, blockchain is a linked database made up of blocks that store information about each transaction, such as the date and time, total amount, buyer and seller, and a unique identifier for each exchange. Entries are linked in chronological order to form a digital blockchain. Entries are linked in chronological order to form a digital blockchain. Blockchain is decentralized, which means any central authority does not control it.
Can I Invest In Cryptocurrency?
Yes, with exchanges like WazirX, you may invest in cryptocurrency in India. To begin, go to the WazirX website and register. After that, you will receive a verification email. The link received by verification mail will only be available for a few seconds, so make sure you click it as quickly as possible. This will successfully verify your email address. The following step is to set up security, so choose the best solution for you. After you've set up the security, you'll be given the option of continuing with or without completing the KYC process.
Can Bitcoin Be Converted To Real Money?
Crypto exchanges, Bitcoin ATMs, Bitcoin Debit Cards, and Peer Peer Transactions are all options for converting Bitcoin to cash. This can be accomplished by using Bitcoin exchanges such as WazirX. A Bitcoin ATM is a real place where you may purchase and sell Bitcoins with cash, unlike standard ATMs that allow you to withdraw money from your bank account. Many websites provide the option of purchasing Bitcoin in return for a prepaid debit card that works similarly to a standard debit card. Through a peer-to-peer marketplace, you may sell Bitcoin for cash faster and more privately.
What Is Bitcoin?
Bitcoin is a decentralized digital currency that may be purchased, traded, and traded without intermediary like a bank. Bitcoin is built on the blockchain, which is a distributed digital ledger. Wei Dai suggested a new kind of money that relies on cryptography rather than a central authority to oversee its production and transactions on the cypherpunks mailing list in 1998. Bitcoin was the first application of that notion. In 2009, Satoshi Nakamoto sent out the first Bitcoin specification and proof of concept to a cryptography mailing group.
Which Cryptocurrency Is Best To Invest Now?
Litecoin has an 84 million coin limit and a 12.5 LTC block reward, which is more than other cryptos. Miners will find that mining Litecoin is faster than mining any other cryptocurrency because the average time to mine a Litecoin is under two minutes. Because of its increasing popularity, Litecoin is the best of all the altcoins. At WazirX, the current price of Litecoin is ₹12,410.22.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.
