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Get ready, the Bitcoin ‘halving’ is coming

The Bitcoin network has secured a value of over $1.4 trillion. This is slightly smaller than the Taiwan Stock Exchange and slightly larger than Meta’s market capitalization. Financial giants like BlackRock and Fidelity recently launched exchange-traded funds (ETFs) to help retail investors add Bitcoin to their portfolios.

And in less than a week, this trillion-dollar behemoth will undergo a periodic but massive planned upgrade known as the halving. Halvings have driven significant increases in Bitcoin’s price in the past, making Bitcoin holders rich.

Is it likely to happen again? There are reasons to be bullish.

The halving could result in a shortage of available Bitcoin supply, causing the price to rise significantly. Alex – Stock.adobe.com

Unlike traditional currencies, Bitcoin is not issued by a government or central bank, so there is no central authority pulling the strings. Instead, Bitcoin’s “monetary policy” is hardcoded into the software itself, meaning that state actors, corporations, or powerful individuals cannot change or tinker with Bitcoin.

The supply limit for Bitcoin is 21 million units, or “Bitcoin” digital “coins,” and approximately 19.5 million units are already in circulation. New Bitcoins are paid to participants known as “miners” who earn rewards for securing transactions and maintaining the network’s transaction ledger, also known as the blockchain.

Currently, the Bitcoin network generates and pays miners 6.25 Bitcoins every 10 minutes, or approximately 900 coins per day. The network is programmed to reduce the number of newly minted Bitcoins once 210,000 blocks have been mined as a way to throttle supply as the network matures.

This is similar to how gold mining is less fruitful today than in the past because the most easily accessible sources have already been pulled out of the ground. And we plan to reach that mining milestone around April 20th.

“As people around the world grapple with the effects of rampant inflation, Bitcoin is emerging as a tool for individuals seeking refuge,” said Bitcoin expert Perianne Boring. Getty Images of Concordia Summit
Unlike traditional currencies, no formal central bank issues or maintains Bitcoin. AFP (via Getty Images)

After the halving, the reward will drop to 3.125 Bitcoins, or approximately 450 Bitcoins per day. “This schedule started moving in 2009 and hasn’t veered off course,” said BitGo CEO Mike Belshe. For him, he said, this predictability is “an amazing achievement that proves Bitcoin is more reliable than ever.”

In addition, a halving could cause a shortage in the supply of Bitcoin available for sale, which could result in a significant price increase. Imagine what would happen if all the oil wells in the world suddenly produced half as much oil as before, even though demand remained steady.

This explains why past halvings were the driving force behind Bitcoin’s rise. When the last halving occurred in 2020, each Bitcoin was worth about $10,000. In his next two years his highest value reached $67,000. The rise after the 2016 halving was even more dramatic, with Bitcoin rising from $665 at the halving to a high of over $17,000 two years later.

This halving comes as demand for Bitcoin continues to grow due to the popularity of new Bitcoin ETFs. Since January, the Bitcoin ETF has attracted more than $11 billion in new capital, making it the most successful ETF launch in history.

The reaction to the 2024 halving will not only be more pronounced, but also more so than the previous one in 2020, as nearly a third of Americans own or are indirectly invested in Bitcoin today. It has the potential to be enjoyed by far more people and more broadly than the half-life.

Bitcoin “cooling” stations require huge amounts of energy to keep the Bitcoin system running. Reuters

Bitcoin’s popularity has skyrocketed, with tens of millions of people trusting its security and simplicity. immigrant workers For the underbanked in the Global South people suffering from political oppressionNeedless to say, the number of American savers and investors is growing.

“Bitcoin is a tool for individuals seeking refuge as people around the world grapple with the effects of rampant inflation,” said Perrianne Bowling, founder and CEO of the advocacy group Digital Chamber. It is emerging as a.” With more economic activity taking place online than ever before, it makes sense that the digital economy needs its own digital value store and medium of exchange.

However, the most notable thing about Bitcoin is not only its popularity, but also its functionality and reliability. Since its creation in 2009, the network has been working as designed 99.99% of the time. This helps explain why “the demand for new money coming into Bitcoin far exceeds the available supply of Bitcoin,” said Bill Berhyde, CEO of Abra. Stated.

Past “halvings” have resulted in significant increases in Bitcoin’s value, and this could happen again. Getty Images

While the potential impact of a halving is largely positive for investors, there is also reason to worry that Bitcoin’s long-term safety model could also be weakened. After all, Bitcoin relies on miners dedicating huge computing resources to securing the network in exchange for more Bitcoin rewards. What happens if that reward decreases after this halving?

Miners’ costs will not go down, but their profits may go down unless Bitcoin prices continue to rise. If that doesn’t happen, miners may be forced to temporarily suspend operations or shut down permanently while waiting for values ​​to return to appreciation.

Fewer miners means less computing power, and the network could be more vulnerable and possibly more centralized. And future halvings will certainly amplify this concern.

For now, Bitcoin holders see this as an abstract problem to be solved at a later date. For now, they’re content to watch Bitcoin, perhaps the most audacious financial and technological project of modern times, take another big step forward.

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