On May 2020, bitcoin will experience its third halving which means that 50% less bitcoins will be produced and distributed. This may change the value of bitcoin forever. This process is known as halving and it has occurred twice already – after every four years. Each time this happens, the price of bitcoin increases by at least 10 times. The next halving will take place in May next year and you can also be part of ecosystem, all you have to do is buy BTC here.
The deflationary currency
Bitcoin functions on a model of deflation and this simply means that less bitcoins are made over a period of time, thus eventually stopping the supply of bitcoin. The last bitcoin will be mined in 2140 and the supply of bitcoin will be 21 million units. No more bitcoin can be produced thereafter.
This is different to physical currencies which operate with an inflationary model, whereby the banks are able to print extra units of currency at their discretion.
Since only a limited amount of bitcoin can exist at a time, it can thus only be mined and not reproduced. The deflation of bitcoin makes it rare, and thus increases its value due to it being so unique and limited.
The current block reward is 12.5 BTC, which is due to the halving of the block reward twice thus far. This process occurs every four years (210 000 blocks) and is programmed into bitcoin.
Mining difficulty and mining pools
The decrease in block rewards is not the only thing affecting the scarcity of bitcoin. It is even more difficult to solve blocks and generate more bitcoins. This is because the difficulty of mining increases as more miners join the network. This increase in difficulty means that miners need to invest in even more technical and advanced hardware to solve the cryptographic algorithms first. Miners have since come together in mining pools where they group up and try to solve the blocks together. They would then share the block reward amongst each other. The reward is split evenly between all contributors.
Bitcoin Halving and the price of Bitcoin
The block reward halving has had positive effects on the price of bitcoin in the past. This is simply due to the supply and demand factor, though many people will have their own theories.
After the halving in 2020, the block reward will go from 12.5 BTC to 6.25 BTC.
The First Halving
On November 28, 2012, the first bitcoin halving took place. At the time, one btc was worth $11 and within a year the price increased rapidly to $1,100 in 2013. This shows that only a year since its halving, bitcoin had grown 100 times.
The Second Halving
On July 2016 Bitcoin retained a price of around $600–$700 before skyrocketing to $20,000 in 2017. This time it had grown 33 times from its price prior to the second halving.
The Third Halving – what to expect
The next halving is expected 9 months from now and many people are eagerly awaiting the effects of this. It is believed that bitcoin will increase 10 times from its price before its halves so it is estimated to reach $100 000.
No-one can say for sure what the future holds for bitcoin but looking at its history, many believe that it is promising and rewarding.