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Bitcoin Halving: Your Questions Answered

Bitcoin halving is a much-anticipated event that occurs approximately every four years. Bitcoin has been halved three times since its inception in 2009. The most recent halving took place on May 11th, 2020 with the fourth and final event scheduled in 2024. Bitcoin halving events are significant because they signal fewer bitcoins will be mined. Each time halving occurs, half as many bitcoins are released to the public. A fixed number of 21 million bitcoins will be circulating by the year 2140. Capping the number of bitcoins in circulation ensures inflation is not a concern. Bitcoin halving is a complex topic with many implications so let’s answer several common questions asked about the process.


How Does Bitcoin Halving Affect Mining?

Bitcoin relies on the blockchain, a network of high-powered computers responsible for processing, validating, and archiving transactions. Once a block is authenticated by a group of computers it is recorded to the blockchain. Numerous approved blocks form the blockchain. When Bitcoin miners race each other to authenticate new blocks to the blockchain, they earn a specified number of bitcoins as a reward. When Bitcoin was created, it was dictated that these rewards would be slowly cut in half over time and eventually eliminated. Beyond the year 2140, when the total number of bitcoins enters circulation, Bitcoin miners will only take fees on their efforts and no longer receive a bitcoin reward.


Why is Bitcoin Halving Important?

In simple terms: because it creates demand. Without the ability to mine unlimited new bitcoins and water down the price, the purchasing power of a bitcoin should increase over time. bitcoin is revolutionary because it sets forth a deflationary currency. This differs from say, the US dollar, which is inflationary because the government has the power to print more dollars whenever it sees fit. Doing so dilutes the US dollar’s purchasing power as goods and services become more costly. A deflationary currency has a finite number of shares, not unlike gold, and therefore is considered to be a hedge against inflation. As the price of goods and services gets more expensive, the value of bitcoins will theoretically rise too, unlike traditional currencies.


Will Bitcoin Mining Still be Profitable?

Why would miners continue processing bitcoins if no longer rewarded? Because the price of each bitcoin rises as scarcity sets in. After each halving event, new coins become scarcer, driving up their price. Thus, any previously owned bitcoins are more valuable. Historical data shows the price of bitcoin rises exponentially after each halving event. As time goes on, halving will have less of an impact on volatility as more stable infrastructure is

implemented.


After circulating bitcoins reach 21 million in 2140, miners will still be incented to process transactions through fees. Since most miners also own bitcoins, there is an incentive to not only get paid but also to keep the blockchain infrastructure stable and secure. A robust blockchain economy is crucial for transactions and investors alike.

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