What is Bitcoin Halving?

Interested in becoming a Bitcoin miner? As a Bitcoin miner, you are entitled to be rewarded with a certain amount of Bitcoin after successfully validating several transactions in their blockchain system by completing complex computations. The amount of profit earned through this job is undoubtedly quite lucrative. However, you must understand that being a miner requires a lot of capital, and the Bitcoin reward you get will be reduced by 50% every four years. This is because there is a Bitcoin halving event. Want to know more about it and how Bitcoin price movements are being affected? Read on in this article.

What is Bitcoin Halving?

In a Bitcoin mining operation, a miner will earn a certain amount of Bitcoin after solving a complex mathematical cryptographic equation. By performing the validation process, a new block will be created in the Bitcoin blockchain system as a form of verification of each transaction that occurs. The more blocks a miner successfully creates, the more rewards he will get. But over time, the amount of Bitcoin rewards obtained will decrease. This event is referred to as Bitcoin halving.

In short, Bitcoin halving is an event where the mining reward obtained from one block will be divided into two every 210,000 blocks or approximately four years. Halving is a system that was programmed before the asset was launched. This system is in place to reduce the rate at which new coins are added and to reduce the supply of BTC to reduce the inflation rate.

The existing amount of Bitcoin has a low percentage of inflation. To ensure that the amount of Bitcoin never exceeds the limit of 21 million coins, the creator of Bitcoin, Satoshi Nakamoto, created a halving system every four years. Many experts argue that this mechanism is key to the future value proposition of Bitcoin by limiting the number of coins on the market.

How Bitcoin Halving Works

When a Bitcoin halving day occurs, the block rewards earned are split in half so that the amount of rewards earned is reduced by 50%. For example, a block reward that could previously generate a reward of 50 BTC, after halving day, the amount of reward becomes 25 BTC only. In the next halving event, the reward for each block will be 12.5 BTC, and so on, until all Bitcoins are successfully mined.

When Does Bitcoin Halving Happen, Is There a Schedule?

Since the halving system was created before Bitcoin assets started appearing on the market, it is already scheduled with a precise target. It’s just that the schedule is not done by time but occurs every 210,000 new blocks created from the previous halving schedule. If we assume that the average block creation occurs every 10 minutes, then the halving will occur approximately every four years. The last Bitcoin halving was on 11 May 2020, when the number of earned block rewards dropped from 12.5 BTC/block to 6.25 BTC/block.

How Bitcoin Halving Affects the Market Price

Historically, after a Bitcoin halving occurs, there is usually an increase in the market price of Bitcoin. According to the supply and demand theory, less supply – in this case, the number of new coins being mined, with increasing market interest and demand, will make the price of BTC potentially tend to increase over time.

How Does Bitcoin Halving Affect Bitcoin Miners?

Although halving positively impacts the price of Bitcoins in the market, its impact on miners has a lot of debate. The main thing with halving is that the block rewards get smaller while the computing capital required increases due to competition. One of the impacts is that miners who do not have sophisticated capital cannot last long in the Bitcoin mining ecosystem. This is because their competition with miners with more sophisticated tools is not balanced. The more sophisticated the tools, the easier it is for them to win the blocks created. 

In addition, there are also Bitcoin security issues that occur when the number of miners decreases. With the price of BTC getting higher, fewer miners will survive. 

What Happens When Block Rewards Get Too Small

The issue of halving is controversial if block rewards get too small in the future. Ultimately, transaction fees in the blockchain will be the reward for miners. But many critics argue that this is not easy to sustain over a long period. On the other hand, many critics who focus on analyzing the Bitcoin market claim these fears are exaggerated. They argue that advances in transaction technology and new layers of technology will help ease the problem of shrinking block rewards for miners.

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