The birth of Bitcoin brought a series of changes in the economy, providing a decentralized character to a digital resource as valuable as gold and facilitating transactions worldwide. Although the person or persons who designed the Bitcoin protocol under the pseudonym of “Satoshi Nakamoto” kept their identity secret, they drew a perfect plan to make the cryptocurrency have a long-term development without losing its own value, the latter being avoided thanks to what we now know as the Bitcoin Halving.
Every four years, although not exactly, a very important event happens in Bitcoin that is known as Bitcoin Halving. This occurred for the first time in 2012, and again in 2016, therefore it is expected to happen in 2020 and also in 2024. It is about halving the reward that miners receive for completing a block of transactions.
To understand exactly what Halving is about, it is fundamental to understand that mining is crucial for the security of the Bitcoin network, while it is a very complicated task, therefore, the Bitcoin protocol includes a mechanism to encourage people to mine: every time they solve a block, the miner who does, receives an economic reward. This reward is currently the main economic incentive for miners to mine and is called coinbase. In addition, the coinbase has another function: it is the only way in which new bitcoins can be generated. For this work, the miner who solves a block wins a handful of newly minted bitcoins. The current reward is not the same as in the past, nor will it be the same as in the future, thus increasing its value in the market each time.
What was Satoshi Nakamoto’s idea?
Nakamoto’s idea was to create a system that regulates itself and that in a way, emulates gold mining. In the past, gold was essential for the control of inflation since banks could not issue more gold paper money than they had in their coffers, therefore there was a growing money supply in the market with money created from nothing.
Bitcoin tries to replicate this with a digital currency, which over time increases the difficulty to extract new cryptocurrencies and thus control the offer. Something similar to what happens with gold, since it is increasingly difficult to get new.
Nakamoto explained that the constant addition of a constant amount of new coins is analogous to that of gold miners who spend resources to add gold to circulation. In the case of miners, it is CPU time and electricity that is spent.
Breaking it down
When Bitcoin came into existence, the reward for each successfully mined block was 50 bitcoins every 10 minutes. But the code of the blockchain contains a declaration that determines that every 210.00 blocks (something that happens approximately every four years, since each block takes approximately 10 minutes) the reward is reduced to half (halve).
Because of this, with the two halving events that have occurred in the past, the current reward is only 12.5 BTC. And it is expected that by 2020 it will be reduced again to 6.75 BTC, and so continue until there is more to mine. This has many effects on the network.
On one hand, it seeks to extend the reward system of new blocks over time. If we still had a reward of 50 BTC per block, the maximum limit of 21 million would be reached quickly. If we make the calculations we can reach the conclusion that only in 8 years would be enough to reach the limit.
Slowly reducing the reward means that the mining activity extends over time, allowing the miners to continue their activity and performing this task so beneficial for the blockchain. It should be noted that these still receive the commissions when they mine the blocks, so even when the new blocks were finished, they would still get rewards.
On the other hand, halving helps the price of Bitcoin steadily increase its price over time. This is because if demand increases, as has happened in recent times, with an offer that is decreasing, then the price tends to rise. It is important to clarify that not only increases the price, as it is believed, by the limit of the offer, but also has to be accompanied by a greater demand.
What will happen when the last BTC is mined?
Many might think that when the reward of new blocks ends mining will stop completely. And this would be a problem because this activity plays an important role in the transactions we all do on a daily basis. But reality is different, and to understand it better we have to consider two things.
First, according to the calculations made with these mining rates and taking into account future halving events, it is estimated that the last mined block that offers a reward will only be reached in 2140.
If we take into consideration that Bitcoin has been with us since 2009, this implies that the network will have a total of 130 years when this finally happens. For that then it is probable that the cryptocurrencies have changed enormously and the digital financial system has mutated enormously. Perhaps it is not even necessary at that time the rewards for the blockchain to exist.
Secondly, we have to consider what I mentioned earlier, that Bitcoin mining has another source of income besides the reward of new BTCs. The miners in turn receive the commissions that are paid when a transaction is made.
Therefore, the miners may simply survive with the commissions paid for the transactions. Millions of them occur every day, and in the future it is likely that if Bitcoin is still the main cryptocurrency, it will still process a larger amount. In this way the miners can continue with their activity but now receiving a payment from only one source. This issue would depend solely on the personal interests of the miners who, for the time, perhaps a large part of them could consider their operations profitable to validate transactions in the network, keeping in mind BTC’s price by then.
About to enter Halving
This new reduction, which will occur upon completion of block 630,000, will be the third in the history of the Bitcoin blockchain.
So far, more than 577,000 blocks have been mined in total. That is to say, almost 53,000 are missing to reach the division of the reward known as halving, which is given every 4 years, and which is expected for some date between May 20 and 23, depending on fluctuations in processing power.
Among the portals that track the progress towards the next event, most agree that the final date will be next May 23, 2020, depending on the rate of mining and processing power.
Despite this, there are those who foresee a previous date, citing the increase in the hash rate, which already exceeds 50 H/s, in BitInfoCharts data. Among them are the developer Jameson Lopp or the bitcoinclock.com portal. Even so, the possible difference of the date would not be greater than a few days.
It is difficult to predict what will happen regarding Bitcoin price after the next Halving in terms of accurate calculations, however, it is safe to say that an increase in the price of the pioneer cryptocurrency is imminent and will open new investment opportunities, before it happens, of course.