Halving Affects the Bitcoin

October 6th, 2022 by admin Leave a reply »

The halving takes effect when the number of ‘Bitcoins’ awarded to miners after their successful creation of the new block is cut in half. Therefore, this phenomenon will cut the awarded ‘Bitcoins’ from 25 coins to 12.5. It is not a new thing, however, it does have a lasting effect and it is not yet known whether it is good or bad for ‘Bitcoin’.

People, who are not familiar with ‘Bitcoin’, usually ask why does the Halving take place if the effects cannot be predicted. The answer is simple; it is pre-established. To counter the issue of currency devaluation, ‘Bitcoin’ mining was designed in such a way that a total of 21 million coins would ever be issued, which is achieved by cutting the reward given to miners in half every 4 years. Therefore, it is an essential element of ‘Bitcoin’s existence and not a decision.

Acknowledging the occurrence of the halving is one thing, but evaluating the ‘repercussion’ is an entirely different thing. People, who are familiar with the economic theory, will know that either supply of ‘Bitcoin’ will reduce as miners shut down operations or the supply restriction will move the price up, which will make the continued operations profitable. It is important to know which one of the two phenomena will occur, or what will the ratio be if both occur at the same time.

There is no central recording system in ‘Bitcoin’, as it is built on a distributed ledger system. This task is assigned to the miners, so, for the system to perform as planned, there has to be diversification among them. Having a few ‘Miners’ will give rise to centralization, which may result in a number of risks, including the likelihood of the 51 % attack. Although, it would not automatically occur if a ‘Miner’ gets a control of 51 percent of the issuance, yet, it could happen if such situation arises. It means that whoever gets to control 51 percent can either exploit the records or steal all of the ‘Bitcoin’. However, it should be understood that if the halving happens without a respective increase in price and we get close to 51 percent situation, confidence in ‘Bitcoin’ would get affected.

Advertisement

Comments are closed.