Halving is an automatic process where a cryptocurrency’s block reward is halved in order to reduce its issuance. It was first implemented in Bitcoin and from there, it has become an important process for crypto-economic ecosystems.
The first digital currency to implement this process was Bitcoin because the number of existing tokens is finite and set in software. We are talking about 21 million bitcoins, there are not and will not be more, and its software has established that they will be released to miners as they create blocks.
Each block would be validating a certain number of transactions, at a speed of about 10 minutes on average. But, the amount of bitcoins that are released is not the same, that is why this reduction by half was established, every certain amount of blocks.
This automatic process is called or known as the Bitcoin halving and is used to establish determined periods until the end of the coin issuance. The intention is to continue the steps of a deflationary model while serving to gradually increase its value.
Halving: Bitcoin issuance limited
Halving is a process developed so that digital currencies are not distributed immediately, therefore, an algorithm establishes it as emission control. Each of these makes new cryptocurrencies come into circulation and Bitcoins can be bought easily, democratization to distribute it.
This democratization process, as some cryptographic experts have called it, provides the opportunity to prevent everything from being resolved in reduced hands. To Satoshi Nakamoto, developer of the process for Bitcoin, the following words are endorsed:
“The constant addition of a fixed number of new coins is analogous to those who mine gold, who invest resources to put more gold into circulation. In our case, it is the CPU/time ratio and the electricity consumed.”
Halving allows more tokens to be added.
Seen in this way, the evolution of Bitcoin has reached figures of 86.5% of the tokens in circulation, considering that only with the first 205,000 blocks completed, it was possible to reach 50% of the bitcoins.
The halving is divided into periods, and in the one we are currently in, about 2,600,000 bitcoins may be added, and this would mean reaching about 18,370,000 bitcoins. When this mining figure is reached, it can be said that an average of 87% of the coins in circulation has been reached.
What would happen if halving is not applied to Bitcoin?
This is an interesting question because if this mechanism of halving rewards did not exist, there would be no more bitcoins. In other words, miners would be receiving rewards at a very low cost because the currency would not have had time to appreciate in value.
Initially, the amount of 50 bitcoins per block was distributed, about 300 in an hour or what would be 7,200 per day. Annually some 2,628,000 would have been released, which when divided by the total of these, i.e. 21,000,000 coins, would be a product of eight years.
And that time, eight years would be the time Bitcoin would have used to put all its coins into circulation.
Fortunately, thanks to the fact that this crypto, like others, has not collapsed, there are platforms that facilitate its administration in a secure way. For example, Mercury Cash is one of them.
Does halving hurt Bitcoin’s price or not?
This system was created with the intention of encouraging mining by means of proof of work. According to what we have seen now, the algorithm developed by Satoshi Nakamoto, definitely had a futuristic sense and has prevented Bitcoin from depleting. The fact that every four years there is a process of reducing the rewards by a percentage determined by the algorithm, benefits the price of this currency.