By now you may have heard about the upcoming halving event within bitcoin, it’s a big deal and coming up fast with the current countdown
predicating 9th of July for the big day. We want to take a moment to explain the event for those left scratching their head.
The key to understanding the halving is rooted in the system which supports Bitcoin, mining. Mining put simply is the process of recording and verifying all of the bitcoin transactions occurring around the world. When you send bitcoin to someone it is the miners that confirm and add this event to the ever growing public record of bitcoin transactions, so their role in running bitcoin is crucial. The computing power required to handle all of this bitcoin movement and make sure the public record or ‘blockchain’ is consistent is enormous. With computers crunching numbers 24/7 they are rightfully rewarded for the effort in the form of newly created bitcoin.
Still following? Don’t worry that’s the tricky part over and we are almost there, let’s get to the halving. When originally launched in 2009, miners were rewarded 50 bitcoin for each block of transactions they processed and added to the blockchain. This reward gets reduced by 50% after every 210,000 blocks in order to make sure the supply of bitcoin is reduced steadily. Its value, much like that of gold and other traditional commodities relies on its demand and limited supply. Only 21 million bitcoin will ever be created by miners and it’s this finite supply that solves the inflation issue of traditional currencies such as our Australian dollar. Banks can print as much money as they like but when the last bitcoin block is mined, in approx. 2140 that’s it, miners will rely on transaction fees to support their computational effort.
In 2012 when the first halving occurred, miners reward was cut to 25 bitcoin per block, and now, within the next few weeks this reward will split again to 12.5 bitcoin.
What will this mean for you and your bitcoin? At this point there are a lot of theories but it’s impossible to predict exactly how the market will react. The reduced reward certainly puts pressure on miners and the overheads involved in running Bitcoin. However looking to the last halving as a guide, a fair prediction suggests the reduced supply of new bitcoin to the market will increase the overall value of each bitcoin to balance out the issue. The event is unlikely to come as a surprise; awareness of the halving is widespread within the bitcoin community leading some people to expect business as usual with little change in bitcoins price.
Either way, we won’t have to wait long for the answer and will certainly be paying close attention as the halving unfolds.
If all this talk has got you excited and you want to countdown the event in style, the Melbourne Bitcoin Centre will be throwing a party and everyone is invited! You can find more details here