Amidst the whole world is focused on the ongoing pandemic, something interesting is happening in the digital world. While I was exploring the cryptocurrency world, I came across the term “Block Halving”. It is an event occurring nearly every four years where the miners receive a block reward on successfully working on a block. This happens when a block on a bitcoin network is reduced by half. This leads to a decrease at which new bitcoins are generated. The reason why are the miners rewarded is that the miners provide security and they confirm the bitcoin transactions. They solve complex computational problems that allow them to chain the transaction blocks together (this calling it the “Blockchain”). Alternate to the above-mentioned 4-year occurrence of this event, it also happens once every time 210,000 Bitcoins enter the circulation.
Bitcoins came into existence in 2008 and the system of circulation started in 2009. Till now, there have been two halving events, once in 2012 and the other in 2016. Initially, the reward for solving each block was 50 (in 2009), which halved to 25 in 2012 and it further reduced to 12.5 coins in 2016. The block rewards will reduce to 6.25 this year. Another trivia is that the total number of bitcoins that will be ever circulated is 21 million, this means that the number of halving events is also limited.
All of these facts can actually be calculated since, on average, a bitcoin block is mined every 10 minutes and 144 blocks can be mined in a day. At present everyday 1800 (144×12.5) bitcoins can be mined daily. All these calculations made a conclusion that on 12th May 2020 (ETA), the halving will take place (check out this Halving Countdown). Once the halving occurs, the valuation of bitcoin becomes volatile, which means that the prices can either increase or decrease rapidly. It is also a fact that at the time of the previous two halvings, i.e. 2012 and 2016, the prices of bitcoin rose quite significantly approximately a year after the halving. In 2017, bitcoin made news when one bitcoin valued at more than ₹12, 50,000 in December.
There is an explanation by experts for this phenomenon. Going a little on the financial side, by reducing the rate of bitcoins that are mined, scarcity is created and the Stock-to-Flow ratio gets unbalanced and the prices rise. This has created a positivity among the investors that the price of bitcoins will rise again in 2020 and there might be an exponential growth too.
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