The Bitcoin halvening is about to happen on 11th May. It does sound like something from a horror movie, but it really isn’t, and lots of people are eagerly awaiting it.
What is the Bitcoin halving?
It’s something that happens every four years, and at the halvening the number of Bitcoins entering circulation every 10 minutes will drop by half, from 12.5 to 6.25. The halvenings slow the rate at which the full and finite number of Bitcoin enter the market.
People are excited because, “The amount of supply entering the system will suddenly shrink, but the demand will, in theory, stay the same, possibly driving up the cryptocurrency’s price.” That is what people hope, but it may not quite work out that way.
Coindesk says, “But the periodic decline in Bitcoin’s minting rate could have a deeper significance than any near-term price movements for the functioning of the currency.” This is due to the fact that the block reward is an important part of Bitcoin, and as the rewards of mining it decline, “it could potentially destabilize the economic incentives underlying bitcoin’s security.”
Mining is an expensive business, and if the miners’ rewards are halved every four years, or every 210,000 blocks, it may not make economic sense for them to continue their work. Let’s remember that in 2009, the Bitcoin system started at 50 coins being mined every 10 minutes. Two halvenings later, 12.5 bitcoins are currently being dispensed every 10 minutes. This process will end with a total of 21 million coins, probably in the year 2140.
Will the Bitcoin price increase?
While many are convinced it will rise, we can look at the past two halvings and see what happened then. After the first halving in 2012, the price rose slightly. In 2016, something different happened: “On July 16, 2016, the day of the second halving, the price dropped by 10 percent to $610, but then shot back up to where it was before.” While the immediate impact on the price of Bitcoin was small, the market did show a gradual increase over the year following the second halving.
We will have to follow the activity from today and see what happens.