Bitcoin has been in existence for a decade now. It has gained both good and bad publicity during this period. However, Bitcoin still remains a mystery to a lot of people. It is estimated that 1% of the world right now are owners of Bitcoin or other cryptocurrencies. This is proof that the technology still has a very long way to go.
However we are here to understand the upcoming Bitcoin Halving, why it is important that you familiarize yourself with it and what to look forward to in the future. In 2009, Satoshi Nakamoto published a white paper that would bring Bitcoin into existence. In the white paper he explains how Bitcoin was going to work and sets out a monetary policy for Bitcoin. Bitcoin just like any other currency is guided by these policies that gives it unique characteristics. One of the policies is what is termed Halving.
What is Bitcoin Halving?
Imagine if worldwide, there was a known finite amount of Gold say 21 Million kilograms of gold. And because the amount of gold is known to be finite, all countries agree how much gold in total will be mined or extracted from the earth in a certain period. In the agreement, every miner who manages to mine gold successfully has to report how much gold they got. If the amount mined by all countries totals a certain figure then the amount to be mined for the same period is divided by 2. Here is an example with figures, to make it easy the countries agree to mine 50 kgs every 10 minutes for the first four years and then decrease the amount mined by half. That means every day for the first four years they will mine 7 200 kgs, that translates to 10 512 000 kgs in those four years. So if the total amount comes to 10 512 000 kgs, the amount to be mined every 10 minutes will be decreased to 25 kgs. So that means in the next four years they will mine 5 256 000 kgs in total, and the same procedure is repeated every four years(decrease the amount by half)
If you notice, the supply of Gold will start depreciating as the amount gets closer to 21 Million. Although you might think that the decrease in supply will be a bad thing, you need to think of it in a way that, it would be wiser to preserve its value for generations to come. Preserving the value of the precious mineral will also help in its existence for a very long time. Now, if you understood the example above, then you now understand Bitcoin’s monetary policy of Halving. The only difference now is that the policies were created by Satoshi and all the users agreed that it was a good policy. So when Bitcoin started, every 10 minutes, the miners would get reward with 50 Bitcoins. Back then it wasn’t that much of a deal. 50 bitcoins was not a lot of money when bitcoin started. If the same trend continued things would have been different as you would have guessed but thanks to Bitcoin’s monetary policy. The amount of bitcoin that was rewarded every 10 minutes was reduced to 25 bitcoins in the year 2012, 12.5 in the year 2016 and now 2020 the amount will be reduced to 6.25.
So that’s it, so if you ever hear anyone talking about being a bitcoin miner they probably earn 6.25 Bitcoins every 10 minutes, but it’s not all the time since mining is not an easy task. So this will continue and the next time halving will occur again will be the year 2024.
Why should you care?
If you go back to our example, Gold has its own use cases and that creates demand. Now is demand remains the same or increases, which is definitely the odds, and the supply decreases, then there is going to be a scramble for the limited resource. This will increase the price of the mineral. This is the same issue that might have been in the mind of Satoshi Nakamoto. Ever since the existence of Bitcoin, it is the only currency that has gone through deflation(the opposite of inflation). All currencies in the world are haunted by inflation, imagine if in the country you live in, they decided to follow Bitcoins monetary policy?
Definitely the decrease in the number of bitcoins mined will create the scarcity that will eventually drive the price up, at least that is what most people anticipate and no one really knows the outcome for the following months. So this might be the best time for you to start buying bitcoin and HODLing it.
The image below shows a trend of how Bitcoin has responded to halving in the past years. What do you think will happen a year after Bitcoin Halving 2020?
Probably you might have more questions about bitcoin mining and rewards, I don’t aim to get down to that in this article but look forward to an in-depth and technical explanation to Bitcoin Mining. Let me know your thoughts in the comment section, and don’t forget to follow our social media pages.