What is Bitcoin Halving, and what will be its Impact on the Crypto Market?

22 Apr, 2020

Bitcoin and cryptocurrency investors are gearing up for what could be their biggest month ever as the countdown to bitcoin's next halving nears the end.

Bitcoin halving is set to occur in May 2020. So, what is bitcoin halving, how will it affect the price of BTC, and what does it mean for miners and crypto's long-term prospects? Here is everything you need to know.

Sometime in May, the number of bitcoins entering circulation every 10 minutes (commonly known as block rewards) will reduce by half, to 6.25 from 12.5. It is an event that is easy to project since it occurs every four years and has happened twice before.

The appeal of possible profits is what is drawing a lot of attention to next month's halving. The number of coins entering the bitcoin network will suddenly drop, but the demand will, theoretically, remain the same, feasibly driving up the cryptocurrency's price.

However, the periodic reduction in bitcoin's minting rate could have more significance than any short-term price movements for the operation of the currency. The block reward is an essential aspect of bitcoin, as it ensures the security of this decentralized system.

As the rewards reduce to zero in the coming years, it could potentially destabilize the economic incentives underlying bitcoin's security.

How does halving influence the price of bitcoin?

The halving is drawing so much attention basically because crypto enthusiasts strongly believe it will trigger a price increase. The truth is, nobody is sure of what is going to take place.

Bitcoin has experienced two halvings so far, which we can analyze for our benefit.

The November 2012 halving rolled the first illustration of how markets would react to Satoshi Nakamoto's irregular supply schedule. As predicted, the value of BTC started to rise shortly after the halving.

The second halving in July 2016 was eagerly longed for, just like the coming one. On July 2016, the day of the second halving, the price shrunk by 10% to $610, but then spiked up to where it was before, and continued to experience significant increases.

What happens when block rewards get very small or tapper off entirely?

The impact of this reducing block reward is that, finally, it will decrease to nothing. Transaction fees, which users pay every time they make a transaction, are the other way miners earn money. The charges are projected to become a primary source of remuneration for miners as the block reward dwindles.

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