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Big things are about to happen in the Bitcoin world. It's called the half-life. Some experts believe this will accelerate the rise of digital currencies.
Broadly speaking, a halving effectively reduces the supply of new Bitcoin. And that should probably lead to higher prices. That is the principle of scarcity. The fewer Bitcoins that are mined, the more valuable they are.
But will it? And what does this mean? Here's what you need to know as the big day approaches.
What is halving?
First of all, the name. In the world of cryptocurrencies, it seems that few people like the name halving.
But it effectively explains what's going to happen.
And it all involves Bitcoin mining.
Just like geological miners, from professionals to amateurs, who mine the earth to discover new diamonds and gold, Bitcoin miners also have to discover something hidden. They solve a very complex mathematical formula and announce a new Bitcoin. (In cryptographic terminology, a “block” is created and added to a virtual public Bitcoin ledger called the blockchain)
The first person to solve this formula will be awarded a large amount of Bitcoin as a prize. This is why miners try to compete by building the most powerful computer networks possible.
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However, the Bitcoin rewards that miners receive for finding solutions are periodically cut in half. This formula was intentionally built into the computational code that makes up Bitcoin.
The number of Bitcoins that can exist is also intentionally built into the system, with an upper limit of supply of 21 million. Approximately 19 million tokens have been created so far.
and 210,000 expressions (or blocks) each time Once resolved, a halving will occur.
The halving effectively increases the time it takes to reach that 21 million limit. The value of Bitcoin also tends to increase.
Halvings occur approximately every four years, and the next halving is expected to be around April 19th or 20th, but this is subject to change. Three half-lives have occurred so far.
When Bitcoin was first created, miners had a stash of 50 tokens after solving the formula.
During the first halving in 2012, it was reduced to 25 tokens, but in 2016 it was reduced to 12.5 tokens. And since 2020 he has 6.25 tokens.
And when the next halving happens in a few days, miners will only get 3.125 tokens.
Will the halving cause a rally in Bitcoin?
So far, that's the case.
In each of the past three halvings, Bitcoin rose by triple-digit percentage points over the following year.
However, whether the halving itself is the main cause is a subject of debate.
This debate continues even as the next half-life approaches. Bitcoin is already on the rise ahead of the upcoming halving, hitting an all-time high of over $70,000 last month.
Some experts argue that there are other factors that could push Bitcoin's price up this time, whether it halves or not. For example, the fact that Bitcoin adoption is increasing. And traders are reportedly increasing speculation in Bitcoin.
Additionally, major investment firms such as BlackRock have launched spot Bitcoin exchange-traded funds (ETFs) this year, or funds that track the price of Bitcoin. It has also led to an increase in demand for digital currencies.
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This halving therefore appears to come at a particularly good time for Bitcoin.
That's not all. Bitcoin enthusiasts hope that the excitement surrounding the 2024 halving will lead to increased awareness and acceptance of the digital currency.
Will the halving reduce the energy consumption of Bitcoin mining?
This is also a moot point.
Mining Bitcoin requires an incredible amount of energy, but there is still uncertainty about the exact amount.
Some believe that the halving will reduce the stash of Bitcoin available to miners, forcing them to use more computing power to solve the equations. According to this logic, miners will react by trying to solve more equations to obtain more tokens.
However, this is controversial. Some also argue that the energy needed to power all these computers is expensive, so halving should make miners more efficient. For example, miners may use more renewable energy or turn to computers that can do more work with less electricity.
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Some believe that the halving could even lead to few Some of the miners who can no longer compete will give up, which wastes energy. According to this logic, it no longer makes economic sense for them to pay a large amount of energy to get just over 3 Bitcoin tokens.
This is similar to what happened with oil extraction. As the supply of oil dwindles and fossil fuels become more difficult to extract, small businesses drop out and are unable to compete with the financial and technological resources of big oil companies.
Still, no matter what happens, one thing is certain. An incredible amount of energy will still be spent on the Bitcoin announcement, and it will remain a controversial topic for some time.