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The 8 Must-Know Facts To Understand The 2020 BTC Halving

Paymium
Paymium

The cryptocurrency exchange of trust for individual and institutional traders and investors.

Before talking halving, you must understand how the blockchain works: miners dedicate their computing power to verify transactions and secure the blockchain. Each and every block contains a reward in BTC for the first miner solving a complex mathematical problem. This practice is called “mining” and is the only way to create new bitcoins. The halving happens every 210,000 blocks and halves the block reward. Consequently, it reduces the number of new bitcoins produced. Bitcoin being the most used cryptocurrency, it is a major event in the crypto world.

The third Bitcoin halving will occur on May 12, 2020 (follow the countdown here).

Still have questions? Here are the top 8 facts every BTC owner should know to benefit from this historic event!

Block 630,000
Every 210,000 blocks, or roughly every four years, the total number of bitcoin that miners can potentially win is halved. The first halving occured in November 2012, and the second one in July 2016. A Bitcoin block is mined approximately every 10 minutes, but time depends mostly on the difficulty level. The difficulty is established according to the speed of the mining network and how much it deviates from the expected level (this level is adjusted every two weeks). A fast block production means that the difficulty level is too low and needs to be increased, vice versa.



Halving and hashrate
The hashrate represents the computing power in the network. It is an indicator of the security of the network and is important to watch around the halving period. A variation in the hashrate induces a change of how much computing power is dedicated to validating transactions. Indeed, with the last halving we observed a strong correlation between Bitcoin’s hashrate and price.
With the mining reward cut in half, the hashrate is expected to drop too as miners’ profitability will reduce. The question is: how hard the hashrate will fall off?



Scarcity
Bitcoin has a fixed supply and predictable inflation schedule. What we could call the “Bitcoin monetary policy” is an open source code shared across the network. In this code, the halving makes bitcoin scarce over time. This scarcity and its growing utility influence the market value.



Reward and revenue
At the genesis block, miners reward was 50 BTC per block. After the first halving it was reduced to 25 BTC and since 2016, the bitcoin block reward is 12.5 BTC. The upcoming halving will cut this reward to 6.25 BTC. According to Coinmetrics, the daily revenue of bitcoin mining is about $13.4 million, after the halving this revenue is expected to drop to $6.7 million per day.



Mining
The block reward serves as an incentive to complete this job. It is a crucial component for the network. Indeed, the miners’ role is to verify the bitcoin transactions and ensure the security of the network. The halving is eagerly awaited because of its effect on miners’ incentive and Bitcoin scarcity.



What effect on the price?
Everyone has his opinion and yet no one knows for sure! Historically, the two first halvings led to bull markets lasting for about 18 months. Among the most bullish theories, the stock-to-flow (S2F) ratio is a recurring argument. Based on the scarcity of a resource, the S2F ratio is the amount of a commodity held in inventories divided by the amount produced annually. As Bitcoin supply is fixed, its S2F ratio is even higher than gold’s. Considering the market value of Gold is exceeding $8trn, Bitcoin’s market value is expected to grow after the halving.



How many more halvings?
After this third halving, and over the next 4 years, miners will be able to mine approximately 1,312,500 bitcoins. It is estimated that there will be 64 halvings before the last bitcoin is put into circulation. This should happen around 2140. Miners will no longer get block rewards but will be incentivized only by network transactions fees.



Why is there a halving?
What we know is that, in 2009, Bitcoin has been first described as a “peer-to-peer electronic cash system” by its creator. The emergence of Bitcoin occurred in response to the subprime debt crisis and proposed an alternate monetary policy to the one that led us to the krach. As Y. Longchamp, Head of Research at SEBA Bank, stated in a recent article: “Many investors are finding in Bitcoin a response to the expansive monetary policies of the last 10 years. By investing in this currency, they believe in a strict, immutable and predetermined discipline of a monetary policy that is transparent and inflexible since it is written in computer code.”



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Paymium
Paymium

The cryptocurrency exchange of trust for individual and institutional traders and investors.

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