Bigger than Taylor Swift’s Double Album Release? The Halving of Bitcoin

Bitcoin Halved While We Listened to Taylor

Taylor Swift dropped a double album at midnight April 19th, which was planned obviously. That same day Bitcoin Halved (successfully) for the 4th time in its history (if we’re counting EST technically it was the 20th if we were looking at UTC). These two events really are not linked together at all, unless Taylor is Satoshi of course – it’s just a really nice coincidence. The date for the halving was fluctuating due to the event itself being tied to the number of blocks ‘solved,’ which is then tied to the network hashrate and miners doing their thing.

The point here is that the halving for Bitcoin is already programmed in and the initial ‘feeling’ for most people isn’t really ‘felt’ right away. To be honest, if I wasn’t watching the Nice Hash countdown I wouldn’t have noticed a difference in my Friday night. It will make the coming months interesting though and some are speculating we could see impacts faster than any other halving in history.

What is the halving?

I don’t want to waste too much time on this since you can do a quick Google and find the answer relatively fast. The halving reduces the reward to miners by half and it happens about every 4 years. It actually happens every 210,000 blocks, which is why it’s an approximate guess at the timeline. The halving was designed to slow issuance of Bitcoin and in turn creates a scarcity effect. The original block reward a miner would receive was 50 Bitcoin and the halving just took it down to 3.125 from 6.25. As in other cycles, the miners will continue on and the market will adjust. But why are miners going to keep doing their thing? 

Why are the miners incentivized to mine?

Two things: transaction fees and mining rewards. The Bitcoin blockchain is just blocks of transactions that are validated by the miners using powerful, specialized computers (ASIC). Once a block is validated the miner (or mining pool) recieves the Bitcoin reward, which at the time of writing was 3.125 or approximately $200,000 USD. This is one of the reasons price goes up post halving – miners see less rewards, Bitcoin becomes more scarce, and miners have to cover costs associated. 

The transaction fees are an additional benefit to miners for those utilizing the Bitcoin blockchain. The fees can be voluntarily increased to speed up the transaction. The fees did spike post halving (the network effect of course of increased transactions and reduced reward) to a high of $240 and dropped back down to normal levels at the time of writing April 20th.

What’s different and what’s the future look like?

While the hashrate (or computational power used by miners) typically dips post halving and returns to normal levels a few months after, the high price going into the halving might shorten the dip in hashrate which might just mean a slightly shorter 4 year cycle to the next halving. The other thing that is different this time is the amount of institutional money in the system that could suck up the available Bitcoin when markets open. We’ve already seen certain unknown wallets (Mr. 100) suck up approximately 100 Bitcoin a day for 2 months and then the ETFs volume essentially drying out the over the counter exchanges of available Bitcoin. This is simple supply and demand – no available Bitcoin means number go up.

As for the future, we’re still REALLY early in Crypto and Bitcoins lifetime. With the current 4 year cycle and predetermined halving events 2140 is when the last Bitcoin will be mined at which point the reward will be wildly low (in only two more halvings  the reward will be 0.78 Bitcoin). Then at the end of the block rewards miners will be rewarded with only the transaction fees which means the transaction volume will have to be much high OR the fees will be astronomical (which wouldn’t really be conducive to utilizing the network regularly). 

As always, I’m buckled in and ready to see my first full bull cycle out and pull some profit out. I’ll be interested to see how the new players in the industry affect price of Bitcoin and the other coins I hold. Looking at the timeline though I do like to remind myself that although I feel like I’m behind, I’m early.

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