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In the Covid-19 pandemic, the US Federal Reserve pumped $3 trillion in just a three-and-half-month period to counter its impact on the economy.

This example highlights the inherent problem with fiat money: central authorities can print money out of thin air, offering temporary solutions for short-term problems but often leading to long-term complications.

Bitcoin emerged as a revolutionary solution to the challenges posed by fiat currencies. Unlike traditional currencies, Bitcoin operates without the control of central authorities. With only 21 million Bitcoins in existence and no ability to create them out of thin air, Bitcoin offers a finite and transparent monetary system.

The creation of new Bitcoins is tightly regulated. Miners, using computational power, generate new blocks and receive a Bitcoin reward in return. This reward is then circulated into the market. The process is governed by “Halving,” which adjusts the reward amount periodically.

Halving ensures a controlled flow of new Bitcoins, making Bitcoin a safer alternative to fiat money, which is susceptible to arbitrary inflation.

What is Bitcoin Halving?

Bitcoin Halving is a pivotal event that slashes the miner reward in half once every 210,000 blocks are successfully mined on the Bitcoin network, occurring approximately every four years.

Because the halving code was ingrained in Bitcoin’s inception, altering it is not only challenging but virtually impossible.

To grasp the significance of halving, let’s examine past occurrences of this event.

The inaugural halving transpired on November 28, 2012, reducing the miner reward from 50 BTC to 25 BTC.

Subsequently, the second halving took place on July 9, 2016, diminishing the reward from 25 BTC to 12.5 BTC. Most recently, the third halving occurred on May 11, 2020, further halving the reward to 6.25 BTC. The cycle will persist until the 64th halving event in 2140, after which no more new Bitcoins will be created, and miners’ primary income will derive solely from transaction fees.

Why Does Halving Occur?

It Differentiates Crypto Form Fiat Currencies.

As you know conventional currencies are subject to control by central authorities.

Bitcoin’s founder, Satoshi Nakamoto, foresaw the pitfalls of centralized control. By implementing an upper cap on Bitcoin’s supply, Satoshi ensured that no entity could arbitrarily inflate its value.

Halving Incentivizes Participation in the Bitcoin Ecosystem.

With a fixed supply, triggers the urgency to desire, so everyone rush to get the same thing before it runs out.

Investors are driven to acquire Bitcoin before its finite supply is exhausted, creating an inherent demand for the cryptocurrency.

Halving Facilitates a More Equitable Distribution of Wealth.

In contrast to the disproportionate wealth distribution seen with fiat currencies.

Bitcoin’s halving mechanism ensures that wealth is dispersed more evenly among participants. As the reward diminishes and transaction fees become the primary income source for miners, there is a natural incentive to distribute Bitcoin more broadly.

Impact of Halving.

Impact on Bitcoin Price.

When demand increases or remains constant while supply decreases, the price will inevitably surge – a basic principle of microeconomics.

Each halving gradually reduces the supply of Bitcoins, coinciding with an ever-growing demand. Consequently, Bitcoin’s price typically embarks on an upward trajectory following these events.

The two previous halvings serve as prime examples of this trend.

During the first halving in 2012, excitement was palpable as the price surged from around $11 to $12 to an astonishing $1,038 within a year – a staggering 9,336.36% increase.

Similarly, in 2016, after the second halving, the price swiftly climbed from $576 to $650, only to surge to $2,526 a year later, marking a 288.60% increase in valuation.

Even in the 2020 halving, in just last two months Bitcoin’s price increased by 416%, from $18,383 at the end of November to $28,993 at the end of December.

Thus, halving has historically led to significant price hikes, driving Bitcoin adoption. While the 2024 halving may not replicate the same magnitude of price surge due to factors such as enhanced transaction volume tracking and the rise of Bitcoin futures trading, its impact remains eagerly anticipated.

The true impact of the 2024 halving on Bitcoin’s price will reveal itself over time, but past halvings indicate a positive correlation between halving events and price appreciation.

Impact on Mining.

Mining stands as the backbone of Bitcoin, ensuring network security and decentralization. Consequently, it’s the first area directly affected by halving.

Miners earn Bitcoins through two primary channels: block rewards and transaction fees. While transaction fees fluctuate, block rewards traditionally represent the main income source for miners.

Following the 64th halving, miners will solely rely on transaction fees for revenue, rendering each Bitcoin more valuable. Currently, block rewards outweigh transaction fees, but halving slashes rewards in half, potentially discouraging miners. However, historical evidence suggests otherwise.

After the 2012 halving, the hashrate initially dropped from 27.61 THash/s to 19.98 THash/s before steadily climbing to 60 THash/s within six months. A similar pattern emerged after the 2016 halving, with the hashrate falling from 1.56 EHash/s to 1.40 EHash/s initially, then rebounding to 3.85 EHash/s in seven months.

The 2020 halving exhibited a comparable trend, with the hashrate soaring to 137 EHash/s before momentarily declining to 87 EHash/s, then gradually climbing back to approximately 120 EHash/s.

The surge in mining activity is attributed to both Bitcoin’s price appreciation and the utilization of advanced mining hardware like ASIC. This increased mining activity underscores miners’ confidence in Bitcoin’s future, ensuring network security and decentralization.

By navigating the intricacies of halving, Bitcoin continues to fortify its position as a decentralized digital asset poised for long-term success.

Conclusion.

Halving stands as a pivotal event within the Bitcoin network, serving to regulate the coin supply and uphold its decentralized nature. This mechanism ensures that Bitcoin remains distinct from fiat currencies, which lack control over their supply and often face significant financial challenges over time.

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