It’s all over the news and folks seem pretty excited about it: Bitcoin’s undergoing a halving. But what does it mean if you’re a miner or an investor? Here’s a quick explanation of what Bitcoin halving is and how it affects you:
In a nutshell, Bitcoin halving means that the reward for mining a block of coins has been halved. In the latest round of halving, that means Bitcoin miners will now get 6.25 coins for every block they unlock (down from the previous 12.5 coins).
What are blocks, you ask? Well, Bitcoin mining is based around processing blocks of verified transactions, and Bitcoins are rewarded each time a block is completed (the miner has to expend money on mining), with the miner (or pool of miners) getting the coins unlocked. When Bitcoin started off, 50 coins were available for every block. Every 210,000 blocks, the reward gets halved – and the recent halving is the third such one. With Bitcoins blocks unlocked on average every 10 minutes, there’s a gap of around four years between each halving. Eventually, the rewards will get so low (the total number of Bitcoins will always be lower than 21 million) that mining will cease. That’s one of the aspects that draws people to Bitcoin – a cap on the total number that can ever be created means that unlike fiat currency, no one (such as a central bank) can create more and thus lower the value of each bitcoin through inflation.
How does the Bitcoin halving affect miners?
With fewer coins up for grabs each time a block is mined, Bitcoin miners will see a drop in revenue, at least until Bitcoin prices rise to match the higher difficulty of mining. It’s possible that some miners might decide to switch over to other cryptocurrencies, while others might decide to wait and see if prices match the expenditure on mining (Bitcoin mining not only requires expensive hardware, but is also quite energy-intensive). There’s also the possibility that since the halving schedule is pretty much known, miners would have factored it into their profitability estimates.
How will Bitcoin halving affect the investor?
Bitcoin halving affects mining as such, not the price (well, not directly at least), and Bitcoin’s normally high volatility might just eclipse any change in the price. Previous halvings show a general growth in prices in the year ahead, although in 2016, the price dropped the next day (before continuing its upwards climb). Some believe that fewer Bitcoins coming into play, especially at a time where market volatility is generally high (across markets), could lead to a price rise. Others say that might already have been factored into the price well in advance (just like other markets).