The world of cryptocurrencies can be complex at times, but to understand it, these complex parts are what distinguish a good trader from the bad one. Sure, becoming knowledgeable on technical analysis or knowing every part of a single project is a good thing, but if you really want to understand crypto space, you need to start from the basics.
You might think that basics are blockchain technology, or understanding the price movement of crypto, but in reality (although these two are also considered important), basics are that you understand how the most important important cryptocurrency works. Of course, we’re talking about Bitcoin.
Being the most popular currency in the world, with several million in search volume every week, and over 42 times more searches than fiat currency “Euro”, Bitcoin holds a special place in the crypto space.
Being the first cryptocurrency that saw the light of the day, and the first one that became popular, Bitcoin is considered to be the “king” of the crypto market, and many experts say that it is digital gold.
Therefore, it’s no surprise that millions of people hold Bitcoin in their accounts, and don’t ever plan to sell it – they think that its value can only increase in time. Whether that is true or not, time will tell, but what is evident is that many factors influence the value of Bitcoin to be higher or lower.
Some of those factors are not so obvious, because we can’t anticipate what will happen a week from now. For example, no one could anticipate that Tesla would buy $1.5 billion worth of Bitcoin back in February 2021, which made its price skyrocket.
But, there are other factors that experts and traders can anticipate, and knowing these factors will make it or break it when it comes to your investment. If you want to become a better crypto trader – knowing these factors is a must because they are considered to be the basics of Bitcoin and how it works.
In this article, we will focus on Bitcoin halving – one factor that is sure to happen, and that will have a huge impact on the price of Bitcoin. You may ask if this impact will be good or bad? Well, stick to the end of the article to find out – we’ll cover everything there is to it, and see why the halving is so important for Bitcoin and the crypto market in general.
What is Bitcoin?
This might be a question that you, an experienced trader, already know an answer to, but you have to keep in mind that not everyone is in your position. There are beginners out there, and this question (and hence answer to it) is aimed at them. So, let’s briefly see what Bitcoin is.
In a nutshell, Bitcoin is a digital decentralised currency that saw the light of the day back in 2009. The creator of Bitcoin is considered to be the mysterious Satoshi Nakamoto, which is a pseudonym. The actual person behind the architecture of Bitcoin is still not known, and it might actually never be revealed.
Bitcoin is unique because it is decentralized, which means that it isn’t controlled by any government. Take the dollar for example – it is controlled by the US government, and the government can pretty much decide whether they will print (or not print) additional dollar bills, as it did during the Covid-19 pandemic.
Bitcoin, however, doesn’t work that way and doesn’t have an institution that is backing it. It is more secure than other forms of payment because it is encrypted – Bitcoin uses cryptography that keeps it secure. Bitcoin also isn’t physical, which means that you can’t physically buy one, for example, a bill, of Bitcoin.
It is completely digital and stored on a public ledger that anyone has access to, and each transaction is encrypted and has a unique number that you can follow. Bitcoin is, however, backed by immense computing power. This process is called “Bitcoin mining” and this subject is extremely important for the main topic of this article – Bitcoin halving.
If you want to learn more about Bitcoin minning, we suggest that you have a look at this video from 365 Careers.
What is Bitcoin halving?
Before we explain what Bitcoin halving is, you need to understand how one Bitcoin gets mined. Let’s say that you want to buy 1 Bitcoin. To do so, you need to pay the price that is currently set for one Bitcoin. You also need to pay a fee in order for the transaction to happen. This is essentially what you see, and it seems fair.
In reality, if we look from the angle of someone who is mining Bitcoins, he/she is actually using his/hers computing power to solve complex mathematical structures in order to “find”, or mine 1 Bitcoin. Using computer power costs electricity and therefore, Bitcoin miners take a certain fee that they will use as a reward for mining a specific amount of Bitcoins.
There is another important thing that you need to know – Bitcoin is limited. If you take the US dollar for example, in theory, it’s not limited, since the government can keep printing US bills whenever they want. This may cause inflation but hey, that’s just how it works.
Bitcoin, on the other hand, has a set number. No more than 21 million Bitcoins can exist, and that is known as a “hard cap”. This means that Bitcoin has a limited supply, and well if you understand economics, something that is limited means that it can always have more value than something that isn’t limited.
Right now, miners get paid a certain amount of Bitcoin for every block that they mine. After every 210,000 blocks (or 4 years more or less), these prizes get cut in half, which means that miners will now receive less for their mining. This also means that the date of mining of the last Bitcoin is coming near and that soon there won’t be any Bitcoins left to mine.
Why does Bitcoin have a halving?
This is a good question and it is important to understand why exactly Bitcoin has a halving. It is pretty much a pivotal event in the world of cryptocurrencies, and if we could pick one factor that highly impacts the price of Bitcoin and all other cryptos, halving would be it.
Halving basically creates synthetic price inflation until all Bitcoins are released or mined. This is important, as this means that the price of Bitcoin is staying in control, and it isn’t moving all over the place. The halving is important since it marks the drop in the rate of new Bitcoin being produced. We said before that the total supply of Bitcoin is 21 million. Well, what would you say if we told you that over 18.5 million Bitcoins are currently mined, which means that there are just about 2.5 million left to be mined.
This is extremely important since once those Bitcoins are mined, there won’t be any left – since Bitcoin has a definite supply.
The Bitcoin halving is explained in a good way in Investopedia article about it:
“In 2009, the reward for each block in the chain mined was 50 bitcoins. After the first halving, it was 25, and then 12.5, and then it became 6.25 bitcoins per block as of May 11, 2020. To put this in another context, imagine if the amount of gold mined out of the Earth was cut in half every four years. If gold’s value is based on its scarcity, then a “halving” of gold output every four years would theoretically drive its price higher.”
The halving keeps “miners” busy, but at the same time keeps the network going on, and prolongs the definite mining of the last Bitcoin. But, the real question is – how does the halving impact the price of Bitcoin?
How does Bitcoin halving impact the price of Bitcoin?
Even though the demand for Bitcoin and the overall craziness for it is increasing, periodical halvings keep the rate at which the new coins are created in control, and at the same time lower the amount of fresh supply. Because of this, a certain paradox happens – even though the demand for Bitcoin is increasing, the price is increasing as well (same as with gold for example).
Halvings have a big impact on the price of Bitcoin – of course in a positive way. Let’s take the first halving for example. On 28th November 2012, the first halving happened. At that time, Bitcoin’s value was $13. On November 28th, 2013, the value of Bitcoin was $1,217.
It’s obvious that the first halving had a huge impact on the price of Bitcoin, and thus, many investors label it as a key date in the history of cryptocurrencies. Several halvings occurred since then, and after each one, the price of Bitcoin soared and reached its new all-time high.
The last halving was on 11th May 2020. On that day, the Bitcoin price was $8,787, and a year later, on April 14th, 2021, it was $64,507. Do you see a pattern?
With all of this being said, it’s safe to assume that after the next Bitcoin halving, which is set to happen in 2024, the price will soar one more time, and who knows, maybe Bitcoin will hit the $100,000 mark.
Why is Bitcoin halving important?
Bitcoin halving is considered to be one of the most important dates in the crypto world. Not only that it will have a huge impact on the value of Bitcoin, but the halving will also affect many other cryptocurrencies indirectly. Why you may ask? Well, simply put, all other major cryptocurrencies such as Cardano, Solana, and other alts are connected in one way or another to Bitcoin. When Bitcoin makes a move, other currencies follow as well.
Many traders and experts are patiently waiting for the day when the 2024 halving will happen. It is thought that it will be the biggest event yet in the crypto world, especially because crypto became extremely popular in the last couple of years. Some statistics show that over 300 million people use cryptocurrencies regularly, and this number will surely increase after the Bitcoin halving news spreads around the world.
Is Bitcoin halving important to you?
If you are a crypto trader or just a crypto enthusiast, we can say that you should bookmark the 2024 Bitcoin halving in your calendar, as the halving will have a huge impact on the crypto market.
And, it’s safe to assume that if you are a Bitcoin holder, you will end the year 2024 with a smile on your face. The trend of Bitcoin value growing after each halving is enough to be optimistic about 2024 as well, and we don’t see a reason why history wouldn’t repeat.