Understanding the bitcoin halving
Bitcoin mining operates on a decentralized network where validators verify transactions and are rewarded with newly minted bitcoins. For every 210,000 blocks made, however, which takes roughly four years, the number of bitcoins rewarded to miners is halved after the bitcoin halving. This reduction in block rewards is programmed into the bitcoin network’s core code by its pseudonymous creator, Satoshi Nakamoto, as a means to create scarcity over time.
The impact on bitcoin’s price
One of the most closely watched aspects of the bitcoin halving is its potential impact on the cryptocurrency’s price. The theory suggests that as the supply of newly minted bitcoins diminishes, while demand remains constant or even increases, the price of bitcoin could appreciate.
Past halving events have provided some insight into this phenomenon. The first halving in November 2012 marked the beginning of a sustained upward trajectory for bitcoin’s price. Similarly, the halving in July 2016 preceded a significant bull run in 2017, with bitcoin reaching an all-time high of over $19,000 (£15,266) by year-end. The halving in May 2020 also saw a substantial increase in bitcoin’s price over the following year.
Bitcoin has a finite supply
The halving process will only conclude once the number of bitcoins in circulation reaches its programmed limit of 21 million, which is expected to occur in 2140. After this point, crypto miners will only earn profit from transaction fees, which are determined by the size of the transaction and the amount of data involved. Currently, there are 19.7 million bitcoins in circulation.
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