The Three Likely Outcomes from Bitcoin Halving
Bitcoin halving refers to the process in which the Bitcoin networks’ issuance rate is cut in half, and this happens about every four years or after every release of 210,100 blocks.
Usually, new Bitcoins produced by miners who use expensive electronic equipment to mine them enter into circulation as block rewards. However, after every 210,000 blocks or about four years, the total number of Bitcoin that miners can win is halved – this is referred to as Bitcoin halving.
Since the inception of Bitcoin, there have already been two halvings: the first one was in 2012, and the second one was in 2016.
Following the halving event, the block reward will be reduced from 12.5 to 6.25 BTC (Bitcoin mining started with 50BTC as its mining reward and halved to 25BTC by 2012, and then 12.5BTC by 2016).
During those times, there were apparent implications on the financial market and the digital world of cryptocurrencies. Read on to find out the likely outcomes from the upcoming Bitcoin halving event:
1. Bitcoin Miners Have A Reward Knock
Firstly, the Bitcoin halving event will cost miners by cutting their reward in half, but with the additional loss of the sudden fall in reward burden, damages could be twice as bad for miners.
Miners, not expecting a sudden fall in BTC price, had been accumulating Bitcoin, waiting for the value to rise during the halving.
2. A Decline in Bitcoin Hashrate
The hash rate, which is the operation speed of a cryptocurrency mining machine, is essentially a measure of the miner’s performance.
There is an agreement that the hash rate on the Bitcoin network, which currently stands at 1.54 exahashes per second, will experience a slight decline.
The total network hash rate will decrease by approximately 10% after halving since older equipment that is no longer economically viable will leave the network. Later-generation machines will pick up some of the slack.
The most important thing is that even with a decline in the hash rate, the security of the Bitcoin network will not be compromised.
But after the halving, eventually, some miners will leave, everything will settle down, and the system will grow again – this upcoming halving event will not be the first, and it will go on once every four years until all 21m BTC are mined.
3. The Most Important Effect: The Price Leap
There is a price leap effect expected in May 2020 as a result of Bitcoin Halving. This is comparable to what happened the last time there was a halving in 2016, there was a ten-times leap in price. So, it expected that something of the sort will happen again this year.
The underlying argument is that with the halving of bitcoin reward, less supply of BTC will occur from mining. In keeping with the tenets of Economics, a reduction in supply almost always will lead to a price spike.
In 2020, should we expect more of what happened in 2016? If that is the case, profiteers will likely start taking positions now for the expected windfall.