The Tricks And Tactics Behind Bitcoin Halving
Know all that you need to about Bitcoin halving. It is interesting to watch the game unfold.
What Is A Bitcoin Halving?
The Bitcoin halving can be explained only after we first explain a bit about how the Bitcoin network operates. It is a known fact that Bitcoin and its blockchain are a collection of computers or nodes around the world that all have bitcoin’s code downloaded on them. It is thereby each of these computers have all of bitcoin’s blockchain stored on them. While this implies that each computer has the entire history of Bitcoin transactions ensuring that no one can cheat the system as every computer would deny the transaction. Even though in this way the Bitcoin is entirely transparent and no one can make a transaction without everyone seeing it happen those who do not participate in the network as node or miner viewing the transactions taking place to live by looking at block explorers.
The process of Bitcoin mining is where people use their computers to participate in Bitcoin’s blockchain network as a transaction processor. Whereas the Bitcoin uses a system called Proof of Work meaning the miners must prove they have put forth effort in processing transactions to be rewarded. This involves the time and energy taking to run the computer hardware and solve complex equations.
As faster the computers are with certain types of hardware yielding large rewards and some companies have designed computer chips specifically built for mining. These computers are then tasked with processing transactions and they are rewarded for doing so.
The term mining is not used whereas it is used in a reference to the way precious metals are gathered. These Bitcoin miners solve mathematical problems confirming the legitimacy of a transaction adding the transactions to the end of a block creating chains of these blocks of transactions forming the blockchain. It was found that as the block is filled up with transactions, the miners processed and confirmed the transactions within the block rewarded with Bitcoin. These transactions of greater monetary value require more confirmations to ensure security through the process called mining because the work done to get new Bitcoin out of the code is called mining because the work done to get new Bitcoin out of the code is the digital equivalent to the physical work done to pull gold out of the earth.
It is useful to note that every 210,000 blocks mined or about every four years, the reward given to Bitcoin miners for processing transactions is cut in half. Whereas this cut in half the rate at which one Bitcoin is released into circulation. This is how the bitcoin’s way of using a synthetic form of inflation halves every four years until all Bitcoin is released and is in circulation.
It is found that this system continues until around 2140 with the point as miners are rewarded with fees for processing transactions that network users will pay. These fees ensure that miners still have the incentive to mine and keep the network going. Here comes the idea that the competition for these fees will cause them to remain low after halvings are finished.
While these halving successfully reduces the rate at which new coins are created and thus lower the available supply causing some implications for investors as also other assets with a low supply like gold, can have high demand and push prices higher. Whereas if a halving does not increase demand and price, it is then that miners would have no incentive as the reward for completing transactions that would be smaller and the value of Bitcoin would not be high enough .as far as this can be prevented Bitcoin has a process to change the difficulty as it takes to get mining rewards where the reward has been halved and the value of Bitcoin has not increased with the difficulty reduced to keep miners still smaller but the difficulty of processing a transaction is reduced.
It was noted that this process has proven successful twice and the result of these halving so far has been ballooning in price followed by a larger drop. While the crashes have followed these gains, however, it has still maintained prices higher than before the halving. The example follows as the 2018 bubble saw Bitcoin rise to around $ 20,000 only to fall to around $ 3,200 as the massive drop about bitcoin’s price before the halving was around $ 650. So far this system has worked as the halving is typically surrounded by immense speculation, hype, and volatility as it is unpredictable as to how the market will react to these events in the future.