Bitcoin mining is a process that keeps the whole Bitcoin network alive by confirming new transactions and making sure there’s nothing malicious.
Most people think that Bitcoin miners are solving some serious mathematical problems but that’s not the case.
By using special mining algorithms, they are trying to guess the transaction hash.
Bitcoin blocks are created by verifying the hashes on a lottery basis. Yes, a lottery!
Even though I don’t like this metaphor because the entire process is way more complicated, that’s in general how mining works.
They are hashing the block header to find a value lower than the target difficulty.
People can’t do it because there is a huge number of potential combinations and we would need thousands of years to guess the hash.
Bitcoin miners discover a new block approximately every 10 minutes that consists of all confirmed transactions for that period.
If you are one of the miners who guess the hash of the transaction that ended up in the Bitcoin block, you will get a mining reward.
There are two types of mining rewards, transaction fees, and block reward.
The transaction fees are paid by those that are sending their Bitcoin to others. The higher fees they pay, the sooner miners will pick their transactions because miners will get more for confirming and broadcasting their transactions to the Bitcoin network.
The block mining reward is the percentage you get for being part of discovering a new block. When a new block gets discovered, new Bitcoins are created and sent to miners as a reward for confirming transactions and maintaining the entire ecosystem.
Since Bitcoin is meant to have a total supply of 21 million coins, the block reward is being seized every 210 000 blocks by half.
The process of seizing the mining block reward is called halving and it happens approximately every 4 years.
WHY DOES BITCOIN HALVING EXIST?
The traditional financial system keeps printing more and more fiat money that makes existing bills less valuable. Just in the last month, more than 6 trillion dollars were injected in order to save the economy from falling apart. With increasing supply, the value of each individual dollar bill decreases.
Just to help you picture how big that amount is, the current student loan debt is 1.5 trillion dollars, which is 4 times less than the amount of printed money in a period of three weeks.
For another comparison, we can use the entire net worth of the bottom half of America which is 1.6 trillion dollars.
At the same time, because of halving, less new Bitcoin will be created over time. Halving the block reward means that it will take longer for all Bitcoin to enter circulation and ultimately slow down the inflation rate of Bitcoin.
As the total supply won’t grow at a rapid rate, any increase in demand should be followed by the rise in the price.
WHEN WAS THE LAST BITCOIN HALVING?
As we mentioned above, Bitcoin halving happens every 210 000 blocks and so far we experienced two of them.
The first Bitcoin halving was at the block number 210 000 when mining block reward went from 50 Bitcoin per block to 25 Bitcoin per block.
It was on 28 November 2012 and at that moment there were 10 500 000 Bitcoins in circulation.
The second Bitcoin halving was at block number 420 000 when mining block reward went from 25 Bitcoin per block to 12.5 Bitcoin per block.
It was on 9 July 2016 and at the moment of halving, there were 15 750 000 Bitcoins created.
When will be the next Bitcoin halving?
The next Bitcoin halving will happen when the block number 630 000 is reached and the mining block reward will go from 12.5 Bitcoin per block to 6.25 Bitcoin per block.
That will be the third halving projected to happen in May 2020 and the exact date is not known yet but based on calculations, it should be between May 5th and 10th.
The date is unknown because the time for discovering a new block varies around 10 minutes but it’s not exactly 10 minutes. In March 2020, the average block time was 9 minutes and 54 seconds.
For example, an average time for March 2018 was 9 minutes an 18 seconds.
It’s close to 10 minutes but because of this small difference, we don’t know the exact date of the halving. All we know is that it will happen at the block number 630 000.
You can click here to check live stats about block discovering time.
Once 630 000th block is created, there will be 18 375 000 Bitcoins in circulation.
The fourth halving will happen at block number 840 000 when the mining block reward will drop from 6.25 Bitcoin to 3.125 Bitcoin per block and it is projected to happen between May and June 2024. That will be the time when 19 687 500th Bitcoin will be created.
There will be only 1 312 500 left to be created or less than 7% of the total number of Bitcoin that will ever be in circulation.
The fifth Bitcoin halving will happen at block number 1 050 000, the sixth Bitcoin halving will happen at block number 1 260 000, the seventh Bitcoin halving will happen at the block number 1 470 000…
The mining block reward will be decreasing further until all Bitcoins are mined that should happen by 2140.
However, more than 98% of all Bitcoins will be mined by 2030.
HOW DID BITCOIN PERFORM IN THE FIRST HALVING?
Just after the halving occurred, the price skyrocketed and made nearly 2000% rise in the period of 6 months.
Then it spent 4-5 months accumulating before making one more move up making a total rise of more than 9000% in just a little bit more than a year.
Even though these numbers are impressive, we have to admit that halving was not the only catalyst.
There were also other reasons that easily affected a very small market at that time.
But halving was definitely one of the biggest reasons.
HOW DID BITCOIN PERFORM IN THE SECOND HALVING?
Even though it didn’t outperform the first halving in percentage terms, it was the catalyst for the biggest Bitcoin bull market we saw so far.
Similar to the first halving, once halving happened, the price started going up into the phenomenal rise of nearly 3000%.
It took a year and a half from halving date to the highest price set in December 2017.
WHAT CAN WE EXPECT FROM BITCOIN AFTER THIRD BITCOIN HALVING?
Trying to predict the future by looking in the past is not the smartest idea.
Previous halvings were significant because the drops in the bitcoin supply inflation annual rate went from ~25% to ~12% in the first halving, then ~8.3% to ~4.2% on the second halving.
This halving the drop goes from ~3.7% to ~1.8% on an annual basis which is not that big change compared to the first two.
But considering the previous two halvings, we can be optimistic in anticipation of the third halving.
Maybe it won’t make astronomical moves up, but it can be one of the catalysts that will prepare Bitcoin for reaching a new all-time high.
The most important impact of halving is the fact that it decreases selling pressure in the market caused by miners. When you have fewer sellers in the market, the price will have fewer obstacles to go up.
Currently, 1800 new Bitcoins are mined daily an most of them are going to be sold because all their expenses are paid from that profit. After halving, the daily production rate will drop to 900 Bitcoins which is a significant drop in selling pressure.
No matter how Bitcoin reacts to halving in a short term period, in a long term perspective, a decrease in selling should positively affect the price of Bitcoin.
WHY IS BITCOIN HALVING IMPORTANT?
The world’s money is being inflated by new money being printed over and over again.
One of the biggest advantages Bitcoin has is its deflationary nature, where after each Bitcoin halving, less and less Bitcoins are being created.
It’s supply and demand that determine the value of something.
If the supply is going up, the value goes down.
If the supply goes down, the value goes up.
On the other side, if demand goes up, the value will follow.
If demand goes down, the value will go down as well.
It is very important to understand these principles.
They are the reasons why the value of fiat money is going down.
Because of enormous printing, the supply goes up more than the demand can follow, and fiat money loses its value day by day.
On the other side, the supply of Bitcoin is limited to 21 million coins, and we have already more than 80% of coins that are mined.
It means that the supply doesn’t have too much room for growth.
Any increase in demand should cause an increase in the value of mined coins.
This is possible thanks to halving and why it’s so important and why people think of it as a bullish event.
Without halving, Bitcoin would mine forever, and its supply would continue growing over and over again making it the same as inflated government money.
During previous halvings, the biggest overall factor was greed.
People thought it would move higher, and they bet money on that outcome. I think this will still be in place with the next halving.
We’re experiencing economy lockdown we didn’t see in history, the stock market is going through one of the biggest crisis in recent history, global debt is at an all-time high so it’s very interesting how Bitcoin will perform this time.
We hope you understood what Bitcoin halving is and its importance to the entire Bitcoin ecosystem.
Also, we hope you got the point of why it is considered a bullish market event and why it is expected to bring buyers in the market.
Thank you for reading all the way to the end and I hope you enjoyed the article.
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