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People unfamiliar with how the Bitcoin network operates may have some questions: What is "halving," when does it occur, why is it necessary, and what kind of impact might it have on the price of Bitcoin?
What is "halving"? Why is it necessary?
Halving refers to the reduction in the rewards miners receive through mining. Whenever the Bitcoin blockchain produces 210,000 blocks, the Bitcoin block reward is halved.
Currently, winning miners in the mining race receive a reward of 6.25 bitcoins, which will decrease to 3.125 bitcoins after halving.
Bitcoin's creator, Satoshi Nakamoto, designed Bitcoin with a fixed supply to distinguish it from fiat currencies like the US dollar. According to the rules in the Bitcoin protocol code, the total supply of Bitcoin can only be 21 million. Bitcoin experts estimate that the last Bitcoin will be mined around 2140.
Every time a miner successfully mines a new block, they receive a certain amount of Bitcoin as a reward. These rewards are designed to incentivize miners to provide computational power to the Bitcoin network.
Miners act as guardians of the Bitcoin network, competing not only for computational resources but also bearing the responsibility of maintaining system stability. Each transaction needs to be verified and confirmed by miners, and only with the approval of enough miners can transactions be permanently recorded on the blockchain.
In the early days of Bitcoin, miners could earn Bitcoin by running software nodes on their laptops. But as the competition intensified, miners now need to use powerful computers and consume a large amount of energy to remain competitive.
One of the original intentions of Bitcoin's design was to become a deflationary asset, meaning its value would increase over time. Therefore, to make Bitcoin a deflationary asset, the Bitcoin rewards for miners must decrease over time, thereby limiting the total supply of Bitcoin.
Matt Weller, Global Head of Research at FOREX.com and City Index, commented to MarketWatch:
"The primary purpose of 'halving' is to control the Bitcoin supply and create a deflationary economic environment. By slowing down the generation of new Bitcoins, assuming demand remains stable or increases, halving helps maintain scarcity and enhances the value of cryptocurrencies."
When does "halving" occur?
Ali Dhanani, Technical Partner at law firm Baker Botts, stated that no one can precisely predict when "halving" will occur, but it happens after the completion of the 840,000th block in the Bitcoin blockchain.
According to data from blockchain.com, as of 4/15, the Bitcoin blockchain has reached the 839,400th block (still increasing). Dhanani noted that if an average of one block is mined every 10 minutes, this means "halving" will occur around 4.3 days after Monday evening, which is Friday night or Saturday morning Eastern Time.
Every 210,000 blocks mined, the reward per block mined halves.
In the past, this has taken roughly four years. The first halving occurred on November 26, 2012, the second on July 11, 2016, and the third on May 11, 2020.
According to Weller, theoretically, the impact of "halving" on the price of Bitcoin may have already been reflected because the approximate date is known in advance.
But this time, there is a new situation—never before has "halving" occurred so quickly after Bitcoin reached a historical high. Analysts believe that this "halving" may be one of the drivers of this year's bullish crypto market.
In addition, hints from the Federal Reserve about interest rate cuts in 2024, as well as the launch of a Bitcoin spot ETF earlier this year, have also affected Bitcoin's performance.
Bitcoin "halving," miners "in the crosshairs"?
Compared to the price of Bitcoin, so far, "halving" seems to have a greater impact on the stock prices of Bitcoin miners such as Marathon Digital.
Marathon Digital's stock price has fallen more than 36% since the beginning of the year, closing at $15.15 on Monday.
Other miners' stock prices have also experienced sharp declines since the beginning of the year, including Riot Platforms, which has fallen nearly 45% since 2024, closing at $8.57 on Monday.
This is understandable. "Halving" directly affects one of the two main sources of income for miners—mining rewards (the other source being transaction fees). However, miners' operating costs, such as electricity bills and equipment costs, do not decrease due to halving.
This means that if the price of Bitcoin and transaction fees do not increase significantly to offset the impact of halving the reward, many miners may face profitability difficulties. |
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Post time 25-4-2024 12:56:52