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Halving: everything you need to know about this key mechanism in crypto

proof of work cryptocurrencies , such as Bitcoin. Every four years or so, the reward paid to miners for validating blocks is halved. This gradual reduction slows the issuance of new currency and limits the supply available on the market, contributing to Bitcoin's scarcity .

Unlike currencies , whose money supply can be increased without limit, Bitcoin is based on a maximum supply of 21 million units. This cap makes it a unique store of value long- appreciation potential , especially in a context where traditional currencies are experiencing continuous depreciation.

To better understand this long-term erosion of purchasing power, you can use our inflation calculator between 2 dates , which allows you to concretely visualize the impact of inflation on fiat currencies and appreciate the appeal of an asset like Bitcoin in comparison.

Table of Contents

What is Halving?

Definition of Halving

The term "halving" comes from English and literally means "reduction by half." In the context of cryptocurrencies, it refers to the halving of the rewards given to miners for validating transactions on a blockchain network . This mechanism is designed to limit cryptocurrency inflation by controlling its supply.

Origin of the term "Halving"

This concept was initially introduced by Satoshi Nakamoto , the pseudonymous creator of Bitcoin, as part of the cryptocurrency's protocol. The idea is to ensure a gradual scarcity of Bitcoin, thereby strengthening its long-term value.

Why does it exist?

The halving exists to maintain the deflationary nature of cryptocurrencies like Bitcoin. Unlike fiat currencies, which can be printed in unlimited quantities, cryptocurrencies based on them have a fixed maximum supply. This reduces the supply over time, potentially increasing demand and therefore the price.

How does Halving work?

Mining Rewards Reduced

When a halving occurs, the rewards miners receive for validating blocks are reduced by half. For example, if miners previously received 12.5 bitcoins for each validated block, they will now receive only 6.25 bitcoins . This reduction typically occurs every four years for Bitcoin.

Halving and Bitcoin

Bitcoin History

First Halving in 2012

The first Bitcoin halving took place on November 28, 2012. At that time, the block reward was reduced from 50 to 25 bitcoins. This initial event was followed by a gradual increase in the price of Bitcoin.

Second Halving in 2016

On July 9, 2016, the second halving reduced the reward from 25 to 12.5 bitcoins per block. This halving was also marked by a significant increase in the price of Bitcoin in the following months.

Third Halving in 2020

The third block rebate, which occurred on May 11, 2020, further reduced the reward from 12.5 to 6.25 bitcoins per block. This event was followed by a historic bull run , driving the price of Bitcoin to unprecedented highs.

Impact of the Halving on the Price of Bitcoin

Fluctuations Before, During and After

Bitcoin halvings are often accompanied by significant price volatility. The market often anticipates an immediate move afterward, but in reality, the process is far more complex. cycles have shown that significant price increases have occurred several months after the halving. This is due to the gradual impact on supply and demand, as well as other macroeconomic factors influencing the cryptocurrency market.

Influence on the Cryptocurrency Market

The halving doesn't just affect Bitcoin alone. In fact, the impact of this mechanism is felt across the entire cryptocurrency market, often leading to widespread price increases and heightened interest in other digital assets.

The Halving and Other Cryptocurrencies

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Bittensor

Bittensor , an innovative cryptocurrency in the field of decentralized artificial intelligence, also uses a halving mechanism. This process aims to regulate inflation and ensure a fair distribution of rewards within the network.

Kaspa

Kaspa , a cryptocurrency focused on fast and efficient transactions while maintaining a Proof of Work , also integrates this system. This mechanism is crucial for maintaining the stability of its network while encouraging the adoption and continued use of the cryptocurrency.

Comparison of Halvings of Different Cryptocurrencies

Frequency of Halvings

The frequency of halvings varies from one cryptocurrency to another. For example, Bitcoin has one every four years, while cryptocurrencies like Kaspa may have different cycles, of about one year.

Impact on the Network

Halvings affect not only the amount of cryptocurrency in circulation but also the entire mining ecosystem. Reduced rewards can lead to increased centralization, as only the most efficient miners can continue to operate profitably. More and more large companies are specializing in cryptocurrency mining to capitalize on this activity. Companies like Bitfarms , F2Pool, and Riot Platforms are investing heavily in mining equipment to remain competitive, which can also influence the decentralization of the network .

halving

Consequences of the Halving

Impact on Miners

Reward Reduction

The halving directly reduces miners' revenue. This can make mining less profitable, especially for small miners who lack access to advanced equipment or cheap electricity.

Profitability and Decentralization

With the decrease in rewards, some miners may leave the network, potentially further centralizing mining power in the hands of a few large players. However, those who remain can benefit from a possible price increase to compensate for the reduced rewards.

Impact on the Global Ecosystem

Controlled Inflation

Halving is an effective method for controlling cryptocurrency inflation. By limiting the supply, it helps maintain or increase the cryptocurrency's value, thereby attracting more investors and strengthening confidence in the asset.

Adoption of Cryptocurrencies

Halvings are often high-profile events that draw attention to Bitcoin and other cryptocurrencies. This can lead to increased adoption, as new investors enter the market, attracted by the prospect of potential gains.

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Myths and Realities about the Halving

Does Halving Guarantee a Price Increase?

Although previous halvings have been followed by significant price increases, this does not guarantee that every halving will lead to such a rise. The market is influenced by many external factors.

Does the Halving Really Influence Supply and Demand?

The halving reduces the supply of new cryptocurrencies, but its impact on demand is more complex. Investors must consider market psychology and other macroeconomic factors to fully understand its impact.

Conclusion

The halving is a crucial event in the cryptocurrency ecosystem, influencing not only the price and scarcity of digital assets, but also the overall adoption and profitability of mining. Whether you're a miner, an investor, or simply a cryptocurrency enthusiast, it remains something to keep an eye on.

FAQ

1. What is halving in blockchain?

The halving is an event where the reward given to miners for validating transactions on a proof of work is halved. This occurs approximately every four years for Bitcoin and aims to limit inflation by reducing the supply of newly created cryptocurrencies.

2. Why is the halving important for the price of cryptocurrencies?

The halving reduces the supply of new cryptocurrencies in circulation, which can create scarcity in the market. Historically, this reduction in supply has often led to an increase in cryptocurrency prices, although the impact is not immediate.

3. Which cryptocurrencies, other than Bitcoin, use halving?

Besides Bitcoin, other cryptocurrencies use the halving mechanism, such as Bittensor and Kaspa . These digital assets also operate on the principle of proof of work , periodically reducing the reward for miners.

4. How does the halving affect miners?

The halving reduces miners' revenue, forcing them to optimize their operations to remain profitable. Energy and equipment costs play a crucial role in this equation. This has led to the emergence of large companies specializing in mining , such as Riot Blockchain and Marathon Digital Holdings.

5. Does the halving guarantee a rise in the price of Bitcoin?

No, although halving has historically coincided with price increases, there is no guarantee. Previous price hikes have often occurred several months after the halving, as the market reacts to other economic factors and the dynamics of supply and demand.

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Yoann

Trained as an engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future, I am participating in its democratization by developing Crypternon.