Bitcoin “half-cut” events have taken place several times before. However, what is a Bitcoin halving? How does this affect BTC itself?
The halving event on Bitcoin crypto is one of the best tactics formed by the number 1 crypto developer in the world.
Its main function is to reduce the inflation rate, which results in an increase in the price of Bitcoin itself, if the demand for it also increases.
As befits an economic law where demand and supply will affect the price or value, especially crypto.
So, the more the number of BTC, the more likely its value will decrease. Vice versa, the smaller the number of BTC, the value will increase.
Of course, this Bitcoin halving event had a lot of impact on both the crypto market, miners and crypto holders. The Foundation of the Bitcoin Blockchain Network
Before you understand what a Bitcoin halving is, you must first understand how the Bitcoin blockchain network works.
Blockchain as the technology that underlies BTC basically consists of a collection of several computers running the Bitcoin Core software and contains a history of Bitcoin transactions either in part or in whole.
This process is responsible for rejecting or approving transactions on the Bitcoin network. To do this, the computer that is the node in the blockchain will repeatedly check to make sure this transaction is valid.
Each transaction will be approved separately. This happens only if all the transactions in the block have been approved. After that, these transactions will be sent to the existing blockchain and broadcast to other nodes. The more computers or nodes added to the blockchain, the more stable and secure the process will be.
By the end of August 2022, there are an estimated 15,169 nodes running on Bitcoin. Although anyone can join the bitcoin network as a node, as long as they have storage for downloads of the entire blockchain and transaction history. However, not all affiliated nodes are BTC miners.
The Basics of Bitcoin Mining
Bitcoin mining is a process whereby people will use their computers to participate in processing or validating transactions on the bitcoin blockchain network. Bitcoin uses a system known as Proof-of-work (PoW). This means that miners must be able to provide evidence that they have a role in the transaction process in order to be rewarded.
This business or role includes the time and energy used to run computer hardware and software that is useful in completing complex calculations when the transaction process on the bitcoin blockchain takes place. Bitcoin halving is closely related to the world's largest crypto miner.
The meaning of miners in this case is not mining metal like in the real world. Instead, miners take part in solving mathematical problems and confirming the legitimacy of every transaction that takes place.
Then, the miner will add these transactions in the block and create a chain (chain) of transaction blocks that will form the blockchain. When this block is filled with transactions, miners will get a reward in the form of Bitcoin. Transactions with larger monetary values require more confirmation processes that guarantee their security.
What Is Bitcoin Halving?
Every 210,000 blocks have been mined the equivalent of once in 4 years, the rewards given to Bitcoin miners are cut in half.
The last Bitcoin Halving occurred on May 12, 2020, which reduced the number of Bitcoins in circulation, namely 900 BTC every day or 328,500 BTC per year, quoted from Blockchainmedia.
In 2009, the gain from mining Bitcoin was 50 BTC. After the first halving it was 25 BTC then 12.5 BTC. Then in May 2020 it was 6.25 BTC. So, at the fourth halving expected in 2024, the gain from Bitcoin miners is only 3.125 BTC. You can understand this event better through this infographic.
This system not only affects the amount of BTC in circulation but also keeps the Bitcoin value high until all BTC is scattered. This system will continue until 2140, when the limit of 21 million BTC is reached. When this happens, miners will get rewarded from transaction fees from users.
These rewards serve to maintain the role of the miners so they keep the blockchain and network processes running.
Halving Process Less Than 4 Years
In general, halving events take place once in 4 years. However, if you pay close attention, the event will occur less than the estimated time. The question is why did this happen? As it turns out, the Bitcoin mining algorithm will take 10 minutes (on average) to look for a new block. However, if the number of miners is greater, then the ability to carry out this process will be stronger and the time needed to search for new blocks will decrease.
This will be faster if the mining difficulty is reduced, due to certain events. For now, due to technological developments and the Bitcoin network environment, the average discovery of a new block can be done in just 9.5 minutes.
When Do Bitcoin Halvings Occur?
Halving events in Bitcoin are very important events in the crypto world, because the price of BTC will increase as their number decreases, historically. This event proved to increase the price of BTC massively. For example, in 2012, the price of Bitcoin rose from US$12 to US$1,207 in 2013.
The second halving event occurred in 2016 which made the Bitcoin price increase dramatically from US$647 to US$18,972 in 2017. However, in 2018 the price actually dropped to US$3,716. However, this halving event increased its value by 575 percent.
However, the last halving in 2020 was the most fantastic. Because the price of Bitcoin rose 461 percent from US $ 8,821 to US $ 63,233 which proves the increase in the value of BTC after the halving is consistent with the previous halving.
What Changes When a Bitcoin Halving Event Occurs?
In general, there are theories when Bitcoin halvings occur, namely:
Miner income halves -> inflation halves -> demand is higher -> prices increase -> miner incentives are still available although less but in the process the value of BTC increases
However, it is possible that after the halving the demand and price of BTC does not increase, so miners do not get any incentives. Finally, the rewards for completing transactions on the bitcoin blockchain are getting smaller, and the value of BTC is not high enough.
To prevent this, it turns out that bitcoin has its own way of dealing with it which can change the level of complexity to get the bitcoin reward.
The reduced level of difficulty or complexity certainly makes the effort and resources needed to confirm transactions lighter. So, miners will still get appropriate incentives. So, even though the amount of the prize is reduced, the mining process becomes easier and this tactic has proven successful.
For example, in 2017 to 2018 there was a bubble in Bitcoin which made its price rise to US$19,000 and fall to US$3,700. Its value fell quite drastically, but before the halving, the value of BTC was around US $ 650. So, the income of miners is still quite large.
However, from the system that has been running so far, it turns out that there are many things that affect market reactions and the price of bitcoin itself such as speculation, hype and volatility which makes it difficult to predict. The third halving event occurred during a pandemic and also a shift in regulations from various countries. As a result, bitcoin prices have become even more difficult to predict. Even so, many analysts predict that bitcoin will improve at the next halving, quoted from Blockchainmedia.
What is the Effect of Bitcoin Halvin?
Bitcoin halvings are major events and have a significant impact on various parties associated with the BTC network.
Investors
The bitcoin halving event is a breath of fresh air for investors. Because the value of BTC will increase by reducing the number of these coins which then has an impact on increasing demand.
This will make crypto trading increase drastically. However, the increase in value will vary depending on the conditions of the halving process itself.
Miner
For bitcoin miners, this halving event can be a problem in itself. Even though the value goes up, the amount of BTC itself will decrease drastically. This will make it difficult for small or individual miners because they have to compete with large mining organizations.
Based on research, the capacity of BTC miners is inversely proportional to the price. So, when the price of BTC increases the number of miners on the Bitcoin network decreases and vice versa. These bitcoin halvings not only increase the price of the crypto itself but also increase the probability of attacks on the bitcoin network by up to 51 percent. As the number of miners leaving this network increases, it makes the bitcoin blockchain less secure. Through the explanation above, you already understand what Bitcoin halving is as a whole. You can put these events to good use so you can earn bigger profits with BTC.
