Cryptocurrency enthusiasts have been eagerly awaiting the third week of April. btc-halving-2024-05-10-12-00″ title=”” rel=”noopener noreferrer” target=”_blank”>Counting the days until a potentially crucial moment in bitcoin's development called “the halving.”
Basically, the halving is a scheduled reduction in the amount of new bitcoin entering circulation. As supply falls, some analysts anticipate the price of the digital currency will skyrocket.
These reductions occur approximately every four years. But this year's halving has attracted especially enthusiastic attention as the cryptocurrency industry recovers from years of price declines and corporate implosions.
In recent months, the price of bitcoin has risen to record levels, reaching $73,000 in March. Much of that rise was driven by the approval of new financial products linked to bitcoin, which fueled billions of dollars in new investments. Cryptocurrency investors hope that the halving will create a similar effect, driving the price of bitcoin even higher.
Here's what you should know about the halving.
How does halving work?
A key purpose of bitcoin is to allow people to exchange money without any type of intermediary, such as a bank, verifying the transaction.
Instead of a bank, a distributed network of computers spread around the world, all running the bitcoin software, performs the verification. To confirm a transaction, computers solve complicated puzzles and compete with each other to guess the answer. This process is designed to ensure that Person A has sufficient funds to send money to Person B.
As a reward for the verification service, the people who operate the computers, which require enormous amounts of energy, receive rewards in the form of new bitcoin. Each halving reduces the size of that reward by half (the current reward is 6.25 bitcoin).
What's the point of halving?
Since bitcoin's creation in 2008, investors have also envisioned it as a hedge against inflation.
In a traditional financial system, governments can start printing more money when they believe the economy would benefit from doing so, sometimes causing inflation. Many cryptocurrency advocates are skeptical of that practice.
The bitcoin halvings are timed to ensure that the total number of coins that will ever enter circulation is capped at 21 million. As the amount of bitcoin in the world approaches the limit, the size of the reward for verifying transactions will become smaller and smaller, gradually approaching zero. That fixed supply, cryptocurrency advocates argue, should protect bitcoin's value in the long term.
When is the halving?
The timing of each halving is written into bitcoin's underlying code: it occurs approximately every four years, after the number of bitcoin transactions reaches a certain threshold.
The exact timing depends on the pace of transactions, so it is difficult to predict the day the halving will occur. Current projections suggest it will take place on Friday or Saturday.
How will the halving affect the price of bitcoin?
In theory, a reduction in new bitcoin entering circulation should cause prices to rise. Several crypto experts have predicted that the coin's value will continue to rise this year, partly as a result of the halving.
But the effect of the halving may already be reflected in bitcoin's soaring price, other analysts said. After all, the halving is not unexpected: it has been programmed into the software since the inception of bitcoin.
How will it affect the bitcoin mining industry?
In the early days of cryptocurrency, someone running bitcoin software on a laptop could verify transactions and earn the reward, a process known as mining. But over time, the computational process has become much more energy intensive.
Today, bitcoin mining is dominated by publicly traded companies that run warehouses full of computers and consume enormous amounts of energy. The halving represents a potential threat to that business model as it reduces the amount of bitcoin these companies can earn.
Adam Sullivan, CEO of bitcoin mining giant Core Scientific, said some smaller mining operations could be forced to close.
“Larger companies will be able to purchase facilities,” Sullivan said. “Small businesses are going to struggle after the halving.”
