This year, on May 30, there will be the third BTC halving. The fact that 50% fewer Bitcoin will be created every ten minutes may lead to a change to its cost, Mediuim portal reports. This process is known as halving, and it has happened two times already, and each time led to an increase in Bitcoin’s price (it grew by at least ten times). Nowadays, BTC is quite popular, but not many people discuss it.
Bitcoin uses the deflation model which refers to the fact that over time, there will be fewer and fewer Bitcoin, and eventually, the supply will come to an end. In 2140, the last Bitcoin will be mined as its supply reaches a maximum of 21 mio tokens because of the algorithm used, which means that no more tokens can be generated. This model differs from fiat currencies that apply an inflation model. The inflation model makes it possible to create additional currency. For example, banks can print some more currency when it’s necessary. Since the amount of BTC is limited, it’s only possible to mine it, not create it. Bitcoin is deficient due to this deflation model. When something is deficient, it’s more valuable.
To generate a bitcoin, miners must solve a “block” of transactions and add the BTC to the blockchain. This process is not cheap. Specialized hardware needs to be used, as well as a huge amount of electricity. When the blocks are solved, the miners get bitcoins as a reward. These coins are given out by the BTC algorithm and are called “block rewards.” The process happens once every ten minutes, which means that new bitcoins are mined every ten minutes.
The first BTC block rewards to be given was 50 bitcoins, which means that a miner could get 50 BTC in ten minutes and have them sent to his/her wallet. Unfortunately, much time has passed since BTC’s cost was merely a dollar and anyone could mine it using only a PC or laptop. Today, miners don’t earn as much as they used to.
The block reward is now no more than 12.5 BTC because there have already been two halvings. This process will occur every four years; it’s built into BTC and will end in 2140. The next halving that is about to happen in May will reduce the block reward to 6.25 BTC. Also, it’s expected that the halving will affect the price greatly, like it did the last two times.
Bitcoin is deficient not only because of the reduced block rewards but also because it’s quite complicated to solve the blocks and get bitcoins these days. This complexity occurs because of the large number of miners that appear each day. Furthermore, very powerful hardware is needed to solve the cryptographic algorithms.
As the mining difficulty increased, miners have started creating “mining pools” to solve the blocks together and then share the reward. These pools are basically networks of people who share the processing power and the reward.
The reward depends on the amount of power contributed while solving the block. For instance, Slushpool has 15,700 active miners who will share the 12.5 BTC block reward if they find a block. One currently costs $11,450, so 12.5 would be worth $143,125.
Let’s imagine that each miner uses an equal amount of processing power. That would provide each person with $9.11 ($143,125 ÷ 15,700 = $9.11), or 0.00083 BTC (12.5 ÷ 15,700 = 0.00079), for every block they mined. This strong mining pool of 15,700 people would give the miners involved a less than $10 each for every block they solve if they make equal contributions. This is a far cry from the $143,125 (12.5 BTC) block reward.
The halving usually influences the BTC price positively. There are lots of suggestions why it has such great influence, but the simplest is the supply and demand: the fewer bitcoins created, the more valuable and deficient they become.
This year, the halving will reduce the block reward from 12.5 BTC to 6.25 BTC. We’ll discuss this phenomenon with the help of our previous example. Let’s again talk about the Slushpool’s 15,700 members, who will distribute the 6.25 BTC block reward if they find a block. If the price of BTC stays at $11,450, the then value of 6.25 would be $ 71,562.50.
Again let’s imagine that all miners use an equal amount of processing power. Each person would get $4.55 ($71,562.5 ÷ 15,700 = $4.55), or 0.00039 BTC (6.25 ÷ 15,700 = 0.00039), for every block mined. This strong mining pool of 15,700 people would give the miners involved a less than $5 each for every block they solve if they make equal contributions. This is two times less then they got in the previous example.
Some people will find it useless to mine BTC after the halving, while most users will go on mining but will sell their tokens at a higher rate and boost the price. We can look back on the past to see how the halving has influenced the value of Bitcoin.
The first halving happened on November 28, 2012, and at that time, the price of BTC was $11. In 2013, the price skyrocketed and reached an unbelievable $1,100. It took only a year for BTC’s value to become 100 times more. Then the price decreased and was about $220 and stayed less than $1K for the next couple of years. Even though the price was lower, it still was 20 times more than before the halving.
The second halving occurred in July of 2016. The price of BTC was $600–700, and then it pumped to $20,000 in the 2017 bull run. Before the second halving, BTC’s value grew 33 times of its initial price, and the value became 1,818 times more than the initial price before the first halving.
What can we expect from the next halving coming this year? BTC is predicted to follow the uptrend and reach a new high in 2021. Its value is said to become about ten times greater than the price before halving, so $100K seems realistic in this case. The CEO of Kraken, Jesse Powell, believes that the halving may lead to Bitcoin’s price growing to $100K or $1 mio. Powell says, “When I hear people talking about a bitcoin ‘correction’ I’m thinking $100K, maybe $1 mio. That’s what’s correct.”
There’s one more person who thinks that it’s possible for Bitcoin to be worth $100K in 2021: Anthony Pompliano, co-founder of Morgan Creek Digital Assets. “Supply-Demand economics remain valid,” he says. “They are a great way to determine the market price. So, if the demand for a fixed-supply asset increases, we continue to see price appreciation.” Anthony also claims that “one of the largest drivers of that demand or increase in scarcity is the halving in May 2020 which I think is going to be a big moment.”
Nevertheless, we need to have some patience to see how the price changes after the upcoming halving.