Table of Content
- How Bitcoin Halving Function
- Why Cryptocurrency Mining Occurs
Satoshi Nakamoto, a person who created bitcoin in 2009, designed a way for new bitcoins to be distributed without a person or a group of people deciding who should get them. The idea called “Bitcoin Mining” was to reward people with new bitcoin to verify recent transactions into new blocks through computational work. First, going further on the topic, one should be aware of what Bitcoin mining precisely means? Bitcoin mining is when new bitcoins are entered into circulation, making it difficult to maintain and develop a blockchain ledger. It is performed using very sophisticated computers that solve highly complex computational math problems.
Cryptocurrency mining is conscientious, costlier, but rewarding. Mining has a magnetic appeal interested in Cryptocurrency for many investors because miners are rewarded for their work with crypto tokens. Bitcoin halving takes place after every four years.
How Bitcoin Halving function?
A bitcoin is created as a reward for miners verifying blocks in the blockchain. When bitcoin started, the compensation was set to 50 coins per block, but Nakamoto put into the protocol a rule where every 210,000 blocks or roughly every four years, the reward would be cut in half, Bitcoin Halving.
When the first 210,000 blocks are mined, the reward for mining a block falls by half. For the first 210,000 blocks, the tip was 50BTC per block. As more blocks were mined and more bitcoins went into circulation, the first set of 210,000 blocks were mined by 2012, and the reward was cut in half to 25BTC. In 2016, the second set of 210,000 blocks were mined, and the prize was cut to 12.5BTC. Now recently, mining took place in 2020 after completing the third set of blocks; the reward is now 6.25BTC per block. Now in the year 2024, the next bitcoin halving will take place.
Why Cryptocurrency mining occurs?
The supply of bitcoin is fixed at 21 million. Upon reaching the 21 million mark, the creation of new bitcoins will cease. Bitcoin halving ensures that the amount of bitcoin mined with each block decreases, making bitcoin more scarce and valuable.
If the price of bitcoin doesn’t increase and block rewards are halved, miners may lose the incentive to create more of the digital currency. Mining bitcoin requires high amounts of computational power and electricity that is a significantly costlier process.
Within a year after the first halving, bitcoin rose over 90X from the $10 region to a peak of about $1,180. For the second halving, bitcoin went high up to $2,800 from $600 within the year before peaking at nearly $20,000 in Dec. 2017.
The bitcoin halving, which reduced the new supply of bitcoin generated by cryptocurrency miners from 12.5 to 6.25 BTC per block (a reduction from roughly 1,800 BTC down to 900 BTC per day), arrived between the economic fluctuation due to the Coronavirus pandemic.
Sebastian Serrano, CEO of Argentina-based cryptocurrency exchange Ripio, quoted,” The international scenario is quite different than in 2016, and bitcoin has never been tested during a global economic crisis. So we can expect anything to happen”.
Philip Gradwell, the chief economist at analytics firm Chainalysis, said, “Bitcoin mining pools have been accumulating ahead of the halving.”