Bitcoin is in for a bit of a change. On Monday, May 11, Bitcoin block awards halved for the third time in the cryptocurrency’s history. That sure sounds like a noteworthy event, but what precisely does it mean?
If you’re thinking in terms of traditional currency, events like this can seem nonsensical or confusing. Even if you do know a thing or two about Bitcoin, the concept of halving may be unfamiliar to you. To help clear things up, here is what Monday’s halving involved and what it means for the future of Bitcoin.
What Is a Bitcoin Halving?
First things first, what exactly does Bitcoin halving mean? To understand this process, you need to know some of the things that set Bitcoin apart from other currencies. The most important thing to keep in mind here is that there’s a limited supply of Bitcoins.
Unlike fiat currencies like U.S. dollars, you can’t keep making new Bitcoins forever. There are only 21 million Bitcoins, and once users get all of them, the number in circulation will never change. How do new Bitcoins emerge? They come from a process called “mining.”
Mining is a process of using high-tech computers to solve complicated calculations to validate Bitcoin transactions. If you do so successfully, you get a block of brand-new Bitcoins. Every 210,000 blocks mined, the number of Bitcoins you get from each block halves.
Monday marked another 210,000 blocks, so block rewards went from 12.5 Bitcoins to 6.25. This halving helps avoid inflation. Since it slows how quickly you can mine new Bitcoins, it, at least in theory, drives the price up.
Past Bitcoin Halvings
There have been two other Bitcoin halvings before the one that occurred on Monday. The first halving happened in late 2012 and the second in 2016. When Bitcoin first launched, each block gave 50 Bitcoins, then 25, then 12.5 and now it’s down to 6.25.
If these past halvings are any indication, this process does increase the value of Bitcoin. After both the 2012 and 2016 halvings, Bitcoin’s price skyrocketed within the next year and a half. It seems like a safe assumption to say the same thing will happen this time, but it’s hard to be sure.
What Does This Mean for Bitcoin’s Future?
Monday’s halving is a little different than the previous two. It’s the first time Bitcoin’s halved during a period of economic distress. Not just that, but it’s the first time Bitcoin as a whole has seen a recession of this magnitude.
Bitcoin launched back in 2009, at the heels of the Great Recession. The current recession from the COVID-19 pandemic is more substantial, which could affect Bitcoin’s price. The assumption that halvings increase value relies on people continuing to buy Bitcoin, which may not happen in a recession.
If people don’t buy new Bitcoins, then the halving won’t increase its value because of a lack of demand. Bitcoin’s value isn’t the only thing that might be affected, either. It could have consequences on the environment.
Bitcoin mining uses a considerable amount of energy, and now it takes twice the work to mine the same amount of Bitcoins. This could lead to people using more power, which would harm the environment. On the other hand, though, if the price does increase, there would be less incentive to do so.
If you already own Bitcoins, you won’t notice a difference until you use them. Depending on how the market reacts, you could be wealthier or poorer as a result. You won’t lose or gain any Bitcoins, but their buying power will change one way or the other.
Crypto and Uncertainty
Bitcoin is infamously volatile, for the same reasons that can also make it ideal in some circumstances. Its limited supply means changes in demand affect it more than traditional currency.
Any changes that do occur won’t be immediate. Whether Bitcoin’s value will go up or down depends on how people react to the halving. If they keep buying it at consistent levels, it’ll increase, if not, it could drop.
Any statement about the future of Bitcoin at this point is just speculation. Past halvings have increased the value, but prices didn’t peak until roughly a year later. The future of Bitcoin could be bright, but it will take a while to see for sure.