When talking about cryptocurrencies there are certain aspects that can not be overlooked. And, when the subject is focused on mining, it is important to pay attention to “halving”. What, without doubt, is an issue that worries many.
Bitcoin was not the first cryptocurrency that existed, but it was the first that managed to stay afloat. And, thanks to his talent, he stays with us until today and not in any way, but as number one. But, like everything else, he has had to adapt to the circumstances, which has made him make certain changes. Something that was established in the protocol since its inception is “halving”. Bitcoin has already gone through several halving and there are still to come. But to not continue incognito we will understand what this term refers to.
What is a halving?
Bitcoin is a cryptocurrency with a limited supply of tokens, therefore, the tokens that are distributed with mining will end at one time or another. The maximum number of bitcoins established is 21 million tokens. In the process called mining, users in charge, “miners” use computer equipment known as “nodes” to create blocks validating transactions. They are rewarded by this process which, although it may seem simple, is complex and serves to secure the network.
The difficulty to create a new block is increasing. Interest in Bitcoin has led to the creation of specialized mining centers that make mining from home no longer profitable. The computing power of these centers is much higher than that of a common user. In addition, and although it may sound contradictory, the reward has been decreasing with the passage of time since the Bitcoin genesis block was mined. This event is called halving.
It is the term used to refer to halving the reward of miners for completing a transaction block.
Halving in Bitcoin
The Bitcoin protocol stipulates that this reduction takes place every 4 years. So every 4 years, after a specific number of blocks have been created, the miners go on to receive half the reward for the same job.
If the value of the reward per block had been kept at 50 bitcoins, the total of the Bitcoin tokens, the 21,000,000, would have been distributed in barely 8 years.
Initially, the reward per block for Bitcoin was set at 50 BTC. That is to say, all those who knew Bitcoin at the beginning and invested in mining during the first years were rewarded with 50 bitcoins per block.
At the time of the creation of Bitcoin, halving was an aspect that was taken into account. It was expressly designed so that the reward was decreasing. In this way stability is achieved in the environment and the miners continue to be safe and encouraged to continue giving support to the network.
Bitcoin’s technical paper compares some aspects of Bitcoin mining with those of gold:
“The constant addition of a constant amount of new coins is analogous to gold miners who spend resources to add gold to circulation. In our case, it is CPU time and electricity that is spent.”
Being an open source project you can easily access the lines of code that allow the Bitcoin reward to be reduced through the Bitcoin Github repository:
Consensus.nSubsidyHalvingInterval = 210,000
And with this it is known that the Bitcoin reward is reduced by half every 210,000 blocks.
Past Halvings in Bitcoin
As I said, Bitcoin started with a reward of 50 bitcoins per block. This reward was maintained until November 28, 2011. At the time of halving the reward went from 50 to 25 bitcoins per block. Subsequently, in July 2016 there was another halving with which the reward was halved again, 12.5 bitcoins. And, in this way, Bitcoin’s blockchain has been maintained until today.
When will the next bitcoin halving be?
The next bitcoin halving will be in about 465 days, it is expected that the 210,000 blocks will be mined from the last halving by May 24, 2020. Currently there are 17,535,737 bitcoins in circulation, approximately 83.55% of the total.
The 2020 will not be the last, approximately 4 years after Bitcoin live another going to a reward of 3,125 bitcoins per block. And so on until the reward becomes 0. Therefore, the only reward that miners will receive for their work is the fees subject to the transactions. This last halving will be given in the block 6,930,000 that, according to the calculations will happen in 2040.
Impact of halving in Bitcoin
The historical price graphs of Bitcoin show that the halving in the Bitcoin network has not had an immediate impact. But, both the 2011 and the 2016 could have gone unnoticed by anyone not engaged in mining. However, if we observe the movement of the price before and after these dates it can be seen that before the prices tended to fall and that later, there were upward movements.
This does not mean that the price of Bitcoin will increase just after the next halving. The level of popularity of the cryptocurrencies is incredibly greater than that of those dates. Today there are many other aspects influencing daily the price of cryptocurrencies. And if the predictions of Bitcoin fanatic experts are not wrong, their price will rise considerably before the end of the year.
Why do not we have to fear?
Scarcity is a characteristic that throughout history has made things valued. Again, a clear example of this is gold, this bright yellow noble metal that attracts so much attention. Bitcoin goes the same way. By 2040, the widespread adoption of Bitcoin is likely to become a reality and its transaction fees will continue to be profitable to mine, even though there is no direct reward from mining for this.
There is no doubt that Satoshi Nakamoto, the famous but unknown creator of Bitcoin, worked silently but exhaustively when creating his undoubtedly best creation. It is indisputable that halving ensures that the most important blockchain to date has a bright future ahead.