Third Bitcoin Block Reward Halving
May 12, is the date for the next reward halving in Bitcoin network. This event has a deep effect on Bitcoin directly, and all other cryptocurrencies indirectly. We will review past halving events to better understand this one, but first let’s review Bitcoin block reward itself.
Bitcoin has a genius idea of “mining”. A process where new Bitcoins are generated and become available in the network. Nobody can add/generate/bring Bitcoin from outside of the network. All Bitcoin are mined at some point. When miners confirm Bitcoin transactions and put them in a block, only one of them will be rewarded randomly, with some Bitcoin. At the start of the network this reward was 50 BTC per mined block, but over time, it is reduced as designed in the protocol. Miners will pay for cost of equipment and electricity in hope of getting this reward.
First halving happened on November 29, 2012. Number of blocks mined then was 210,000. At this point, block reward reduced to 25 BTC. On this date, price of Bitcoin was $12. The second halving event occurred on July 10, 2016. 420,000 blocks were mined at that point. Block reward reduced to 12.5 BTC, and the price of Bitcoin was $650. The third one will happen on May 12, 2020. The price is near $8,800 at the time of writing. After halving, Bitcoin reward will become 6.25 BTC.
Some people believe that halving events do not have any effect on price of Bitcoin, because it is predictable and is already priced in. Others believe that because of reduced supply in Bitcoin, when demand stays at the same level, price will be increased.
In a nutshell, all other cryptocurrencies are always affected by Bitcoin. Bitcoin’s inflation will grow slower post event. This will change supply and demand. We have to wait to see if Bitcoin’s price is going to change substantially. It surely affects Bitcoin miners. They will earn less Bitcoin and they have to decide whether they can afford the costs of mining or stop it.
