*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: The Journey So Far
- How did the halving affected Bitcoin in the past?
- Understanding how halving affects miners.
The biggest anticipated event for cryptocurrency traders and investors is upon us. In our first installment, we described the halving as the process that halves the rate at which BTC is mined. Halving is a primary characteristic that gives Bitcoin its ‘sound money’ status. By this, we mean money that is not susceptible to fluctuations in purchasing power in the long-term. This is supported by the self-correcting features of a free-market system.
Bitcoin follows a disinflationary curve since the minting process predicts cutting down by a rate of 50%. This gives Bitcoin its store of value status. Indeed, the halving has affected the price of Bitcoin in the past and this year is no different., We will experience a rate reduction from 3.7% to 1.8%. Significantly, this is the first time that Bitcoin’s supply growth falls below the 2% inflation target that the majority of central banks use.
Subscribe to our newsletter to receive our weekly updates + more straight to your inbox!
Bitcoin Halving and Satoshi’s Whitepaper
Satoshi Nakamoto’s 2008 whitepaper on Bitcoin has high influence in the crypto sphere. It foretold how any form of provable limited data can be used as payment or as a form of electronic cash. Nonetheless, Bitcoin still experiences difficulties when it comes to competing with the more renowned payment methods. This could be due to the complex user experience set-up, volatility, and limitations in scaling.
This seminal paper highlights the crucial role that the halving has had in turning Bitcoin into an alternative form of sound money. As we stated above, that is money not prone to volatility and one that has strong purchasing power within a free market system. The supply of Bitcoin follows a disinflationary curve. Satoshi argues that halving will reduce the annual supply growth rate from 3.7% to 1.8%. For the first time in history, we will witness Bitcoin’s supply growth rate fall below the 2% inflation target that is used by most central banks for their respective fiat currencies.
In addition to the quantifiable supply of new Bitcoins generated the iconic paper also highlights the impact on miners. So let us see how.
How Will the Halving Impact Miners?
Unsurprisingly, halving does not impact the number of new Bitcoins generated.
As miners’ fiat-denominated earnings suffer, the mine will too. Also, the real-world costs need adjustments to reflect this will change.
Revenue will be at a 50% loss because new valid blocks will decline. There are several other factors that will affect revenue. The level of Bitcoin’s mining difficulty is no doubt a determining factor. Likewise, the level of challenge presented by the protocol when it comes to solving the calculations needed to produce valid blocks. These levels and how they will adjust programmatically every two weeks, needs constant analysis in order to predict the effect on revenue.
One thing is for sure; Bitcoin miners expect a rollercoaster ride once the cryptocurrency is halved.