Like the leap year that comes every four years, it's that time again for Bitcoin ( (BTC) ).
We're talking about "halving" -- which often causes a speculative rise in the value of the cryptocurrency.
For those not familiar, Bitcoin halving, which takes place in two weeks, is a mechanism that was integrated into the Bitcoin protocol to limit the supply of Bitcoin and prevent inflation. Many people in the space see the halving as a catapult for BTC price and believe it to be extremely bullish. The proof comes from the previous reductions, which caused the price of Bitcoin to increase considerably.
While Bitcoin developers are actually keeping business as usual, "miners" are especially preparing for the halving, which will cut their block rewards in half mid-May.
What are miners? They are people trying to, in a sense, "crack the code" to mine more coin. Remember, Bitcoin is a blockchain that uses "proof-of-work" as a consensus algorithm to validate transactions that are gathered into blocks. Unlike the dollar, it's not backed up by the Federal Reserve.
To add a new block to the chain, these miners compete against each other in solving complex computational puzzles that work to both validate the transactions and generate, or "mine," new Bitcoin. Whoever solves the puzzle first wins the next block, and its generated block reward. This halving ups the speculative ante for the miners.
What this means is that bitcoin mining farms have been preparing for the upcoming Bitcoin halving, which will cut their block rewards in half mid-May, by purchasing state-of-the-art ASIC computing machines, while also looking for ways to cut electricity costs by leveraging surplus energy from certain cities’ power grids.
This was forecast well ahead, as these halvings happen once every four years or so – or every 210,000 blocks of transactions. At Bitcoin’s launch in 2009, miners received 50 Bitcoins per block, which was reduced to 25 in 2012, to 12.5 in 2016, and will fall to 6.25 tokens in two weeks or so.
Also, on March 9, Bitcoin Core version 0.19.1 was released, which explains a spike in developer behavior we’re witnessing.
Bit by Bit
BTC fundamentals have increased 11-points (1.25%) since mid-March, led by a 22-point climb (2.66%) in Developer Behavior. Market Maturity also rose 18-points (2.21%) in the same time-period, while User Activity remained stable.
Analysis: Is Halving Really Bullish?
Many people in the space see the halving as a catapult for BTC price and believe it to be extremely bullish. The proof comes from the previous reductions which caused the price of Bitcoin to increase considerably.
Yet others argue that the halving is already forecast and therefore cannot constitute an informational shock. In their view, previous spikes in price were tied to other phenomena such as Bitcoin gaining greater mainstream recognition, or the boom in initial coin offerings, many of which had to be bought with Bitcoin.
In the short term at least, it seems the 2020 Bitcoin halving will negatively impact miners and their ability to keep validating transactions. Mining for Bitcoin requires a huge amount of energy, which is why there are mining outposts where electricity is cheap. As a result we’ll likely see smaller, less sustainable operations give way to larger mining farms with access to low-cost energy. That said, the increase in BTC prices in the long term will raise the transaction fees miners also benefit from, making Bitcoin mining a profitable investment in the long run.
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