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07 May 2020
5 min read

Bitcoin Halving 101: Everything You Need to Know

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Written by OspreyFX News Team
*OspreyFX would like to state that traders should research extensively before following any information given hereby. Please read our Risk Disclosure for more information.

Bitcoin Halving 101: Everything You Need to Know

  • Everything you need to know about Bitcoin’s halving.
  • What should you expect from the upcoming halving?

Bitcoin Halving 101: What Does It Mean?

Every investor that engages with the cryptocurrency market knows about Bitcoin’s halving. However, not every trader understands the importance of it and how it has historically affected Bitcoin’s price in the years since the coin’s inception.

Bitcoin halving is an event that happens every 4 years. It is a process that halves the rate at which new Bitcoins are mined.  Indeed it is important to remember that Bitcoin’s supply is finite, which means that once the total supply of  BTC is mined (21 Million), the network will stop producing more.

A total of 18 million BTC are already in circulation at the time of writing. However, it does not mean that it’s close to reaching its limit and that’s when halving plays a crucial role. The protocol that has been coded in the Blockchain since its inception, stipulates cutting down the block reward by 50%. This, in turn, makes it more difficult to generate new coins.

Every time the halving occurs, miners get 50% fewer Bitcoins for verified transactions.

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What Is a Block-Reward and How Does the Halving Affect Miners?

A block-reward essentially means the amount of Bitcoin that a miner will receive for successfully adding a new block to the blockchain. In other words, the blockchain stores information about its transactions in blocks. This is coupled with the fact that a BTC transaction will be stored in the blockchain. If miners successfully validate or mine a new block, then they’ll get a reward in Bitcoin. Their performance is rewarded by solving complex mathematical problems with their mining equipment.

Now that you understand how miners earn Bitcoin, you will also be able to understand how much they earn per block-reward. When Bitcoin was still in its infancy, miners were paid 50 BTC for every block that was successfully mined. This represents a substantial amount of money in today’s context. Indeed, every time a halving occurs the reward is cut by half, after the 2020 halving, miners will earn 6.25 BTC per block.

 

Bitcoin Halving

What Can Traders and Investors Expect From This Year’s Halving?

Previously, we have explained how the halving may affect the coin’s safe-haven status. Today we are focused on the effects that the halving could potentially bring to BTC price and what traders can expect from it.

Historically speaking, every time a halving event takes place, Bitcoin’s price goes up considerably. However, no one can know with certainty what will happen after a halving. Having said that, the market has experienced two halvings so far and both have generated the same outcome.

The community didn’t know how a sudden decline in block-rewards would affect the network in 2012 and the price rose up shortly after the halving. In 2016 the price declined 10% on the first day, but then rose again to its previous levels. Nonetheless, the price still went up gradually throughout the rest of the year.

The theory behind that year’s gradual price increase states that it was a delayed result of the halving. Moreover, the theory also suggests that once the supply declines the demand stays the same, pushing the price up. On the same lines, it is being suggested that we will see a gradual increase in the price of BTC as 2020 continues, but not immediately.

However, it is also important to remind traders and investors that today, more than ever, miners and traders are prepared for the halving. In addition, increased awareness about the halving will probably lead more people to buy Bitcoin. This will raise the price before the halving instead of after.

As we have stated in previous articles, the cryptocurrency market is highly speculative. It is for this reason that we remind traders and investors to do their own research, practice, and get the necessary experience before investing in any coin.