The crypto community remains in expectation regarding all the events that could unleash the Litecoin halving, many claim that the price increase is imminent, others say that mining will fall due to the cut in mining block rewards. The truth is that today, August 5, the difficulty in the algorithms of this network will increase.
Litecoin represents one of the most recognized cryptocurrencies and with the greatest trajectory of the blockchain ecosystem, soon it will carry out a process known as halving, which implies a cut in the margin of rewards captured by the miners in order to protect the value of the digital asset.
The renowned founder of Litecoin, Charles Lee, said that halving means a 50% reduction in the profits received by miners who process transactions in the blockchain. Precisely because of this, the argument behind these events is that it prevents inflation from occurring.
Therefore, Litecoin miners currently receive 25 LTCs per block and, after halving, will receive 12.5 LTCs. And the reason behind such enthusiasm is that it will occur for the first time in four years. In fact, Lee said the next halving will take place in 2023, another four years in the future.
Originally, the rewards associated with each mining transaction block are aimed at remunerating the operators of mining devices, who provide their processing power to ensure the proper functioning of the network. The programming of a halving aims to reduce the amount of LTC generated, causing the offer to be reduced and, therefore, the price of the digital currency remains (or increases) as the amount of current assets approaches the limit figure set by the protocol.
The Litecoin protocol states that there is a halving approximately every 4 years, after a certain number of blocks have been created. For litecoin this amount is 840,000.
As Bitcoin fork, it takes several peculiarities of its protocol and one of them is coincidentally halving. It is no accident that he started with a reward of 50 litecoin per mined block or that the average time between halvings is 4 years.
Litecoin was launched in 2011 with a reward per block of 50 litecoins. On August 25, 2015, it experienced its first halving in which, as expected, the reward was reduced by half, 25 litecoins per mined block.
Expectations within the community
Many users and followers of the cryptocurrency have their expectations that during the dates close to halving the price of the digital currency increases, precisely because when the offer is reduced, traders may want to take advantage and buy the assets before their price increases in a way significant.
However, a study by the agency Strix Leviathan indicated that there is no historical evidence to point out that the price of Litecoin undergoes major changes, which may be directly associated with the halving that will take place in the coming days.
The respective study analyzed data from 24 cryptocurrencies and compared them with a general market benchmark. The prices of each currency were monitored six months before each halving and in the subsequent six months, finding that there were no significant fluctuations in the prices of these digital currencies.
Another aspect that gives much to think about is that at this moment the cryptocurrency market faces a certain recession with respect to what was seen last July. The current state of many digital currencies creates some skepticism among some analysts.
What are the risks?
Although there is no 100% accurate notion about what might happen with the price of this cryptocurrency, the rewards cut creates some fear in a sector of miners, who may find it unprofitable to carry out this activity to support to the network if the associated remuneration is reduced by 50%.
This occurs because the devices generate a significant electricity expense, which may no longer be covered by the profits derived from this activity. Such a situation could lead to some miners choosing to turn off their hardware, or program them to mine on other networks. This would result in a drop in network HASH levels, resulting in greater latency of operations and higher commission costs.
However, an eventual price increase could also be favorable for cryptocurrency mining. Data reviewed by Blockchain.com show that at the times when Bitcoin has had its highest prices, the network’s HASH level also increased significantly, which implied a greater interest on the part of the miners in providing their processing power.