Introduction
Welcome to this new episode where we will understand the bitcoin halving event and why everyone is concerned with this happening. Bitcoin or (BTC), as we know was developed in 2008 by an anonymous person Satoshi Nakamoto. Bitcoin serve as a digital rare commodity which can be traded among peer to peer without any third party and is secured by cryptography. Due to its liquid flow property, the coin was known as first cryptocurrency and can be assumed as like any other fiat currency. But unlike fiat currencies, which are generally regulated by central banks, Bitcoin has no such centralized authority governing it.
No centralized authority? Then who is running the network?
Bitcoin is built on Blockchain which is a distributed ledger that is synced with all the nodes it is made up of. Distributed ledger means that each node is having a copy of latest ongoing activity and transactions. Anyone can be part of the network as it a public blockchain. You and I can send bitcoin’s to each other and this activity is known as a transaction. But you and I are not the only one sending bitcoin from one address to other. Many similar transactions are in queue to be submitted to the network and ready to update all nodes about this transaction. Approximately around every 10 minutes, all transactions in queue are bundled into one block and several miners compete over it to add it first to the network. Adding of block by block after every 10 minutes starting from the genesis block (zeroth block) is what follows a chain of blocks known as Blockchain.
Who are bitcoin miners?
Anyone can send a fake transaction to bitcoin network or anyone can do double spending. Miners are the one who validate and check all the transactions in a block are valid and generate a nonce value which proof to the network that some work has been done by miner also known as Proof of Work. Miners are organisation or individual with massive amount of computational power to perform the Proof Of Work (PoW). But what do they get in return for maintaining and securing the network? Bitcoins! Bitcoin is a reward for their work and the resources they exhausted in the process. This whole process is known as Bitcoin Mining or just Mining. It is predefined that only 21 Million Bitcoins can be mined to keep demand for bitcoin stable. If you think that you can set your laptop for mining process then yes it can mine but approximately after 30 years. The miners have extensive high end devices, one such example is shown below.
Image Source Shutterstock
What is Bitcoin Halving? Why everyone is talking about it?
Rewards are a big integral part of the bitcoin network. It is what keeps the check between demand and supply of bitcoin. What will happen if we find that gold is not a scarce commodity and everyone can have as much as amount of gold they like to keep? Gradually Gold will lose its value globally in the market. Many instances are seen where the government prints more fiat currency than the limit and ultimately price of the currency falls down and the nation leads towards the inflation. Keeping this in mind, Satoshi Nakamoto added a rule where after every 210,000 Blocks, which occur approximately after every four years the reward for miners will be halved. Initially, the reward for the miners was set to 50 BTC per block. The halving event is well described in a tabular way below.
| Year | Block Number | Reward |
|---|---|---|
| 2009 | 1 | 50 BTC |
| 2012 | 210,001 | 25 BTC |
| 2016 | 420,001 | 12.5 BTC |
| 2020 | 630,001 | 6.25 BTC |
| 2024 | 740,001 | 3.125 BTC |
| … | … | … |
| 2140 | … | 0 BTC |
Precisely, halving event occurred on 11th May, 2020 for this year. Many speculations are in market to how it will effect the price of bitcoin. Although, there is an increase seen in the price before the halving event and after the event. On 10th May, the price for 1 Bitcoin was 660,000 INR and currently it is around 730,000 INR (on 19th May,2020). This halving effect will go till year 2140 until all the 21 Millions Bitcoin will have been mined.
Why should halving effect happen?
The answer to this is simple Economics, the law of demand and supply. If bitcoins are created too quickly and there is no end to number of coins created, eventually there will be so many bitcoins created and circulated in the market that they will have very little value. The one reason this event occurs is to keep inflation under control. Always remember from the rule of Economics, Scarcity prevents Inflation. Bitcoin creators designed bitcoin to be valuable hence, they had predefined the rule for halving. With each halving event, mining of bitcoin is more difficult. Ultimately, overall inflation is restricted and supply is met.
Last but not the least!
On a funnier note, J.K. Rowling after seeing so many tweets about bitcoin halving, was curious to know about bitcoin and posted this tweet.
Image Source Twitter
Twitter went crazy when Elon Musk was the one trying to explain what this bitcoin is all about. Internet found this most amazing thing on the internet to happen where two big known personalities where seen sharing their thoughts on Bitcoin.
Image Source Twitter
Thank you for reading.
May Blockchain be with you.