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What is and what does the much-mentioned Bitcoin (BTC) halving mean?

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These days there is a lot of talk about this event, but some people wonder,what is bitcoin halving and what does it mean?.

Halving literally means halving, and in fact halving bitcoin is actually cutting the reward for miners in half.

However, to better understand what is being halved and why it is so important, it is necessary to briefly explain how bitcoin mining works.

When Satoshi Nakamoto launched Bitcoin in 2009, there was still no BTC.

At first, only the protocol existed, published in late 2008, but there was no bitcoin token in circulation.

There wasn't even a blockchain, the first block of which was created and mined on January 3, 2009.

Satoshi's choice was to have the protocol itself create the BTC, giving a reward to the miners who were able to mine a block.

Considering that it was expected to mine approximately 1 block every 10 minutes, and since Satoshi initially decided that this reward would be 50 BTC per block, around 7,200 BTC per day were created.

And so, by the end of 2009, more than 1.6 million BTC had already been created, less than the expected 2.6 million since the rate at which the blocks were mined at the time was slightly slower.

If this rate had remained constant, Bitcoin would never have become a scarce asset, and in fact Satoshi decided that precisely to make Bitcoin a scarce asset over time, the reward would be halved every 210,000 mined blocks.

This is exactly the answer to what Bitcoin halving means, namely the fact that the Bitcoin protocol states that Every 210,000 blocks mined the prize for miners is cut in half.

Since this configuration is native and inserted directly at the code level, it is practically immutable, except for an eventual agreement by most bitcoin users, which has in fact never taken place.

It takes less than 4 years to extract 210,000 blocks at the rate of one block every 10 minutes, which means that two halving events have already occurred: One in November 2012, which brought miners to 25 BTC per mined block, and one in July 2016, which brought it to 12.5.

Bitcoin's third halving

The third halving will take place in May 2020, bringing the reward to 6.25 BTC, while the fourth will inevitably take place after another 210,000 blocks, presumably in the first part of 2024.

This will reduce the creation of new BTC until one day they don't believe themselves anymore.

The objective of this monetary policy is to call deflationary natureThat is, to create a currency whose circulating mass does not continue to increase forever, as is the case with traditional fiat currencies, but which at some point begins to increase very slowly. until it stops.

For example, in 2021, when only 6.25 BTC will be created every 10 minutes or so (900 per day), bitcoin money supply inflation will have dropped below 1.8%, starting to get this coin closer to the goal of becoming a deflationary currency.

After the third halving, bitcoin's money supply will continue to rise, but very slowly, which will significantly increase your scarcity.

To be precise, in 2020, the ratio of stocks to flow Bitcoin, which measures the relationship between stocks and production, will be greater than that of silver and in 2021 will be similar to that of gold.

It is possible that as early as 2022, the ratio of bitcoin stocks to flow also exceed that of gold }, so that will be even scarcer in the markets that precious metal.



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