1. What is bitcoin halving?
Halving is the halving of the reward for miners for adding a new block to the blockchain. Satoshi Nakamoto programmed halving into the bitcoin network every 210,000 blocks, i.e. every 4 years – up to the moment when the cryptocurrency issue will be finished with 21 million coins mined (presumably in 2140).
2. How many times has halving been done?
The bitcoin network has halved twice: on November 28, 2012 and July 9, 2016. While at the beginning of bitcoin’s history miners could earn 50 BTC for adding a new block to the blockchain, after the first halving their reward was reduced to 25 BTC, and after the second – to 12.5 BTC.
3. When will the next halving happen?
The third bitcoin halving took place on May 11 at 22:23 MSK on block #630000. The next one is expected in 2024.
4. Why is halving necessary?
The main purpose of halving is to control cryptocurrency issuance and curb its inflation.
Even before the first halving took place in 2012, Ethereum creator Vitalik Buterin explained its necessity by comparing bitcoin to gold: “The world’s gold reserves are limited, and with every gram mined it becomes harder and harder to get the remaining gold. As a result of this limited supply, gold has retained its value as an international medium of exchange and accumulation for over six thousand years, and it is hoped that bitcoin will do the same.”
5. How does halving affect mining and miners?
To ensure the stability of the network, bitcoin’s creator has stipulated that when mining activity decreases, its complexity also decreases. If, after a halving, some miners find mining unprofitable and give it up, and the network hash rate goes down, then the mining difficulty will go down as well. This means that the intervals at which new blocks are added to the blockchain will remain the same, and the speed of transaction processing will not be affected by the departure of some miners.
In addition, the profitability of bitcoin mining is also affected by the price and volume of transactions in the network: if these indicators are high enough, the negative effect of reducing the remuneration for miners will be less pronounced.
6. How does halving affect the bitcoin price?
The first two halvings on the bitcoin network were accompanied by the increased volatility of the coin during the next 1-1.5 years: the price of the asset could rise from $11 to $1100 or from $230 to $20000 – and fall 5 times. As for the impact of the third halving on the price of the crypto market flagship, experts’ opinions are divided. Some expect growth, others expect no significant changes.
Digital Asset Research believes that bitcoin may rise to $60595 per unit in May 2020. The assumption is based on an analysis of bitcoin price behavior in cycles between previous halvings. It turns out that it rises at the end of the cycle due to increased demand for the cryptocurrency and peaks in the first third of the cycle, each time rising to a new all-time high. The researchers believe that if the pattern they identified repeats itself, a new peak in the bitcoin price will occur in September 2021, and it will reach $732,256 per unit in 2024 when it next halves.
The German bank Bayerische Landesbank concluded that the upcoming halving will allow bitcoin to approach gold in terms of the Stock-to-Flow (S2F) ratio. Gold S2F is 58 and will not be much higher by May 2020, while bitcoin will grow from 28.5 to 53, which will make possible the coin’s price at $90,000 per unit. If the model proposed by the specialists of the bank turns out to be true, the halving of 2024 will raise the strength of bitcoin to an unprecedented level in the history of mankind: over 100.
On the other hand, analysts of the American company Strix Leviathan note that in the run-up to the halving media actively recommend users to hold bitcoins, and the rise in prices in the associated period can be explained by the illusion of growth in the value of the asset on the background of increased speculation.
7. Can halving cause a bitcoin “death spiral”?
Mining complexity is recalculated every two weeks – every 2016 blocks. That’s why the cryptocurrency community is wary of situations where there is a time lag between a hash rate drop and the next recalculation of mining complexity, during which the bitcoin network can enter a so-called “death spiral.
What it looks like: the difficulty of mining remains high, the profitability of mining decreases – miners shut down their processing power, the hash rate drops, and transactions in the network slow down.
However, blockchain expert Andreas Antonopoulos believes that the bitcoin network is not threatened by the “death spiral,” as miners initially enter the cryptosphere with a long-term strategy and will continue to work while waiting for a new recalculation of mining complexity and restoration of the usual network operation.