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

  • LEXICAL / MINKING
  • 10 minutes of reading

Halving is a central mechanism of cryptocurrencies based on the proof of work , such as Bitcoin. Every four years approximately, the reward paid to minors for the validation of the blocks is divided by two. This gradual reduction makes it possible to slow the monetary emission and to limit the available offer on the market, which contributes to the rarity of Bitcoin .

Unlike fiduciary currencies, the money supply of which can be increased without limit, Bitcoin is based on a maximum offer set at 21 million units. This ceiling makes it a unique reserve of value , with a long -term significant valuation potential, especially in a context where traditional currencies undergo continuous depreciation.

To better understand this effect of erosion of purchasing power over the long term, you can use our inflation calculation tool between 2 dates , which makes it possible to concretely visualize the impact of inflation on fiduciary currencies and to assess the interest of an asset such as Bitcoin in comparison.

Table of contents

What is Halving?

Definition of halving

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

Origin of the term "halving"

It is a concept initially introduced by Satoshi Nakamoto , the pseudonym Creator of Bitcoin , as part of the protocol of this cryptocurrency. The idea is to ensure a progressive rarity of bitcoin, thus strengthening its long -term value.

Why is it?

Halving exists to maintain the deflationary character of cryptocurrencies like bitcoin. Unlike fiduciary currencies, which can be printed in unlimited quantity, cryptocurrencies based on it have a fixed maximum supply. This reduces supply over time, potentially increasing demand and therefore the price.

How does Halving work?

Decrease in mining awards

When a halving occurs, the rewards that minors receive for the validation of the blocks are halved. For example, if minors received 12.5 bitcoins for each block validated before, they will only receive 6.25 bitcoins afterwards. This reduction generally occurs every four years for Bitcoin.

Halving and Bitcoin

History on Bitcoin

First Halving in 2012

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

Second halving in 2016

On July 9, 2016, the second reduced the reward by 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, which occurred on May 11, 2020, further reduced the award from 12.5 to 6.25 bitcoins per block. This event was followed by a bull run , bringing the price of Bitcoin to summits never seen before.

Impact of halving on the price of bitcoin

Fluctuations before, during and after

Bitcoin halvings are often accompanied by high price volatility. Often, the market anticipates an immediate movement just after, but in reality, the process is much more complex. cycles have shown that significant price increases occurred several months after Halving . This is explained by the progressive impact on supply and demand, as well as by other macroeconomic factors influencing the cryptocurrency market.

Influence on the cryptocurrency market

Halving is not limited to influencing Bitcoin alone. Indeed, the impact of this mechanism is felt throughout the market of cryptocurrencies, often resulting in generalized price increases and an increase in interest in other digital assets.

Halving and other cryptocurrencies

In the AltcOOS

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 fair distribution of rewards in the network.

Kaspa

Kaspa , a cryptocurrency focused on the speed and efficiency of transactions while keeping a Proof of Work , also integrates this system. This mechanism is crucial to maintaining the stability of its network while encouraging the adoption and continuous use of cryptocurrency.

Comparison between 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 can have different cycles, about a year.

Network repercussions

Halvings not only affect the amount of cryptocurrency in circulation, but also the entire ecosystem of minors. A reduction in rewards can cause increased centralization, as only the most effective minors can continue to operate profitably. More and more large companies specialize in the mining of cryptocurrencies to take advantage of this activity. Companies like Bitfarms , F2Pool and Riot Platforms are in great investigation in mining equipment to remain competitive, which can also influence the decentralization of the network .

halving

Halving consequences

Impact on minors

Reduction of awards

Halving directly reduces the revenues of minors. This can make the mining activity less profitable, especially for small minors who do not have access to advanced equipment or low -cost electricity.

Profitability and decentralization

With the drop in awards, some minors can leave the network, which could potentially centralize the mining power in the hands of some major players. However, those who remain can take advantage of a possible increase in the price to compensate for the reduction of rewards.

Impact on the global ecosystem

Controlled inflation

Halving is an effective method for controlling inflation of cryptocurrency. By limiting the offer, it contributes to maintaining or increasing the value of cryptocurrency, thus attracting more investors and strengthening confidence in assets.

Adoption of cryptocurrencies

Halvings are often very publicized 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 on halving

Does halving guarantee an increase in prices?

Although the previous ones were followed by significant price increases, this does not guarantee that each halving will result in such an increase. The market is influenced by many external factors.

Does Halving really influence supply and demand?

Halving reduces the supply of new cryptocurrencies, but its impact on demand is more complex. Investors must take into account market psychology and other macroeconomic factors to fully understand its impact.

Conclusion

Halving is a crucial event in the cryptocurrency ecosystem, not only influencing the price and the rarity of digital assets, but also the overall adoption and the profitability of mining. Whether you are a minor, an investor or simply an cryptocurrency enthusiast, there remains an element to watch.

Faq

1. What is Halving in the Blockchain?

Halving is an event where the award given to minors to validate transactions on a Blockchain based on the proof of work is half reduced. This occurs about every four years for Bitcoin and aims to limit inflation by reducing the offer of new cryptocurrencies created.

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

Halving reduces the supply of new cryptocurrencies in circulation, which can create a rarity on the market. Historically, this reduction in supply has often led to an increase in the price of cryptocurrencies, although the impact is not immediate.

3. What cryptocurrencies, apart from Bitcoin, use halving?

In addition to Bitcoin, other cryptocurrencies use the Halving mechanism, such as Bittensor and Kaspa . These digital assets also operate on the principle of the proof of work , periodically reducing the reward of minors.

4. How does Halving affect minors?

Halving reduces the revenues of minors, which forces them to optimize their operations to remain profitable. Energy and material costs play a crucial role in this equation. This led to the emergence of large companies specializing in mining , such as Riot Blockchain or Digital Holdings marathon.

5. Does Halving guarantee an increase in the price of Bitcoin?

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

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Noah

Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.