‘The Halvening’ is the ominous-sounding name for the scheduled halving of bitcoin mining rewards. This is built in to the DNA of bitcoin as a cryptocurrency, a fixed event that occurs periodically to keep the supply of new bitcoin in check.
It’s happened a couple of times before since bitcoin appeared in 2009, and we’re rapidly approaching the third such ‘halvening’ of its short lifetime to date.
As with any event affecting bitcoin, the Halvening will likely have some impact on market prices.
But what exactly is it, when will it happen, and how should you best prepare to take full advantage?
The Halvening was designed to throttle the supply of new bitcoins, within the fixed total supply of coins, to help keep BTC values buoyant.
As any student of economics will attest, controlling supply is key to ensuring bitcoin remains fundamentally scarce. By halving the rewards paid to miners for uncovering new blocks on the bitcoin blockchain, the halvening reduces the incentive and profitability for mining new coins, which is coupled with the ever-increasing mining difficulty to ensure new bitcoin are ever-more challenging to mine.
At present, the mining reward for new bitcoin blocks is 12.5 BTC. At the moment of ‘The Halvening’, this will drop to 6.25 BTC per block – half the amount of the current mining reward.
The halvening helps shore up the value of bitcoin against an otherwise ever-increasing supply of coins. It’s designed to slow down the rate at which new coins are mined, which Satoshi Nakamoto decided, in their infinite wisdom, would help preserve value in BTC.
There have been two ‘halvenings’ over bitcoin’s lifecycle so far. These fixed events occur after every 210,000 mined blocks or confirmed blocks. The first halvening took place in November 2012, followed by a second in 2016. The third, and upcoming, is expected to fall around May 2020.
Miners and crypto traders alike are already taking steps to prepare for the halvening, and you can expect to hear a great deal more about it as the fateful date approaches.
But what does this mean for the crypto mining industry, and how is the halvening likely to impact bitcoin prices?
Mining rewards are the incentive for bitcoin miners to power the blockchain network. Miners solve computational problems to verify and record transactions on new blocks, this process brings new bitcoin into circulation. They are paid rewards for their work at set intervals, currently at a rate of 12.5 BTC per block – thereby adding new bitcoin to the global supply of BTC.
When the Halvening strikes, these rewards will be slashed in two, meaning miners are creating fewer bitcoin than is the case today. This should ensure the supply of new bitcoin slows down, which means large scale buyers must turn to the markets to make up the shortfall of BTC that could otherwise flow from the mining sector.
Mining rewards are basically the remuneration for miners, paid in exchange for their role in securing, verifying and recording transactions on the blockchain. In BTC, this is set to reduce at the Halvening – but of course, what this means for bitcoin prices is still uncertain.
So what does this mean for bitcoin prices, and is there an opportunity here for traders to take a profit?
Perhaps not as much as some might suggest. Bitcoin analyst Glen Goodman suggested that any implications of the Halvening will already be priced in to BTC markets, making significant price changes in the immediate wake unlikely.
“Previous halvenings have shown negligible impact on Bitcoin’s price. This is because — rather like a much-anticipated interest rate cut — everybody already knows it’s going to happen way in advance.”
However, as Professor Chris Wilmer of the University of Pittsburgh notes, Halvenings have traditionally preceded more significant rallies in BTC price, with purchasers forced to turn to the open market for BTC, fueling a growth in demand.
“Historically the cut has had very little immediate impact, although the price usually rose after. The rise in price makes sense insofar as large buyers of Bitcoins have to either buy on the market or get them through mining, and after a halving event it forces more people to buy on the market.”
So while no-one can predict exactly how markets will respond to the Halvening, history shows us it’s likely to result in a surge in demand for BTC from the markets – if not immediately, then shortly after the event itself.
With the third Halvening fast approaching, it’s worth being ready to take advantage in the immediate aftermath.