Whenever a BitCoin halving event takes place, there’s always speculation about the significance of the event and how it would affect the BitCoin price. This article will explain what the BitCoin halving events are all about and how it affects the BitCoin community.
As explained in an earlier article, there is a limit to the maximum amount of BitCoins that can ever be created. The BitCoin protocol dictates that BitCoins are generated in blocks. It also dictates that the number of BitCoins generated per block is set to decrease geometrically (by 50%) every 210,000 blocks.
What does this mean with regards to BitCoin generation? Approximately 6 blocks are generated on average within an hour and halving takes place once every 210,000 blocks. This means that there will be a halving event approximately every four years.
People who partake in performing BitCoin computations (mining) are rewarded with BitCoins. So how do these halving events affect people who mine BitCoins? The reward for mining BitCoins is effectively cut in half. So for example, if each miner is rewarded with 25 Bitcoins for solving a block, after a halving event, he will be rewarded with 12.5 BitCoins per block.
The BitCoin protocol dictates that a total amount of 21 million BitCoins will ever be created. This goal is expected to be achieved by the year 2140. The BitCoin halving event is the method that is used to ensure that this goal (and this limit) is achieved.
The following is a quote from Vitalik Buter from BitCoin Magazine:
“The main reason why this is done is to keep inflation under control. One of the major faults of traditional, “fiat”, currencies controlled by central banks is that the banks can print as much of the currency as they want, and if they print too much, the laws of supply and demand ensure that the value of the currency starts dropping quickly.
Bitcoin, on the other hand, is intended to simulate a commodity, like gold. There is only a limited amount of gold in the world, and with every gram of gold that is mined, the gold that still remains becomes harder and harder to extract. As a result of this limited supply, gold has maintained its value as an international medium of exchange and store of value for over six thousand years, and the hope is that Bitcoin will do the same.”
As you can see from this quote, the importance of maintaining a limited supply of BitCoins is paramount in maintaining its value as a viable alternative to fiat currency. Without the BitCoin halving event taking place, then we might as well just continue using wasteful paper currency.
So this brings us to the inevitable questions that are being asked around the world:
When it comes to the question of price, there are only two scenarios that are being forecasted: the price will dramatically rise or the price will generally stay the same. At this point there is little to no chance of any dramatic price drop, since BitCoins are following the same economic rules of demand and supply.
This same debate took place before the first Bitcoin halving event back in 2012. The result was that nothing actually happened to the price. But keep in mind that the BitCoin community in 2012 was much smaller than it is today. When it comes to commodities, it’s a known fact that past trends cannot accurately predict future trends.
Previous trends have shown that the BitCoin price tends to be more affected by external economic forces, rather than by the halving event. The BitCoin halving event takes place approximately every four years. Whether or not this event plays a role in drastic price changes, remains to be seen.