Halving Hype: Everything You Always Wanted to Know About Bitcoin Halving
Friday May 8, 2020
Widely considered the pioneer of digital currency, Bitcoin was created through a complex algorithm that guarantees decentralization, and transparency in its creation – more appropriately referred to as mining. Yet it is also accompanied by the option of ‘halving’ every now and then; a process that is considered more obscure even by many Bitcoin wallet owners. What exactly is halving, when does it happen, and why?
Why is there a 21 million cap in Bitcoin mining?
No cryptocurrency has quite achieved the mainstream recognition that Bitcoin enjoys around the globe. However, its price fluctuation and market volatility are still preventing it from being widely adopted in the ‘real’ economy. Among the companies accepting the cryptocurrency are big names like Microsoft and Starbucks, while clients can spend Bitcoin across over 1650 businesses in 170 countries with Bitrefill and similar service providers.
Yet, Bitcoin is far from reaching mainstream acceptance. Even across online casinos, which have seen some early adopters, reputable providers including Betway Casino continue to opt for much more stable alternative payment methods, such as PayPal and Neteller, instead of turning to crypto wallets. Meanwhile, in the booming eSports and video gaming industry, Bitcoin can be used in a very limited manner and is usually utilized through third-party providers such as Gyft. Riot Games, the studio behind popular video game ‘League of Legends’, and ‘Fortnite’ developer Epic Games still do not directly accept Bitcoin payments.
Across the broader online entertainment and retail industry, the trend is uniform: leading brands like Netflix, Spotify and Amazon Prime still refuse to add Bitcoin to their official payment methods. And while Google Pay and Apple Pay have recently branched out to include some ways to buy Bitcoin, they are still far from accepting Bitcoin as a payment option across a large number of online and brick-and-mortar shops.
One reason for this broader reluctance is the wild ups and downs that both consumers and these companies see in Bitcoin prices. This volatility is enhanced by worries that, without a centrally organized mining process, inflation could cause a sudden surge in Bitcoins, leaving customers or companies in an awkward position when planning their finances and estimating the value of future income and expenses.
So, what could be the solution to these worries? Enter the mining cap and halving, Bitcoin’s very own answers to inflation. Everyone involved in trading and investing in Bitcoin already knows that there is a cap to how much can be mined – which has been set from the very start by the cryptocurrency’s creator at 21 million coins.
As of February 2020, 18 million units out of those 21 million had already been mined, which translates to roughly 85%. Yet, approximately 4 million out of those mined had been lost for various reasons – we have all read sob stories about early miners storing BTC that were then worth next to nothing on now-misplaced flash drives, which, if found again would render them millionaires overnight. Another 1 million Bitcoins have also been stolen in heists and remain missing in action, leaving effectively 13 million in circulation. Despite mishaps, this initially devised 21 million cap is the first of two fundamental safeguards put in place to guarantee that Bitcoin will never be as ubiquitous as to lose its value completely. The second is the process called halving.
What is halving and how does it safeguard BTC investors?
In essence, mining Bitcoin means harnessing the power of a computer to perform complicated calculations, that are verified within a network of other Bitcoin miners, on a public ledger that is known as a blockchain. New Bitcoins are distributed as ‘block rewards’ for the creation of new blocks on this public ledger, and are given to miners in return for committing their equipment to their production.
When Bitcoin first started out, very few people were interested in it or were set on mining Bitcoins. Thus, the block reward was high, partly in order to provide an incentive for miners, and partly just because Bitcoin was not worth much anyway. Yet, as more and more people caught on to it, mining rates went through the roof. If block rewards continued to be the same, then soon there would be no Bitcoins left to mine. Halving is a planned decrease in block reward values that is meant as the solution to this problem.
As Bloomberg Businessweek explains, when the flagship cryptocurrency was first launched in 2009, 50 Bitcoin were given for every block created. In 2012, this amount was reduced by half – hence the term ‘halving’- to 25, then again to 12.5 in 2016, and finally to 6.25 in May 2020. This planned reduction happens every time Bitcoin mining reaches a new milestone – more precisely, every 210,000 new transactions blocks.
This point is reached approximately every four years, depending on the rate of mining. This means that, by the year 2140, when the leading cryptocurrency is expected to reach the limit of 21 million tokens mined, there will have been 64 Bitcoin halvings. Prices soar after every halving, with Bitcoin rising by an impressive 8,000% after the 2012 halving and 1,000% after the 2016 milestone.
This is good news for Bitcoin investors out there, who are eager to see prices rise again after the May 2020 halving – and their profits grow accordingly.