Much is said about Bitcoin halving, whether the value of crypto will rise before or after, if it will rise just before or just after. Much is questioned about the mining landscape, what will happen after halving, whether the mining industry will starve, whether miners will find anything profitable and will stop, causing a collapse of the Bitcoin network.
Before addressing what this means for miners and investors, it is necessary to understand something.
What is Bitcoin halving?
Halving is perhaps the most important event in Bitcoin, which has a direct link to the fundamentals of crypto. Satoshi Nakamoto, while writing the Bitcoin whitepaper, spoke about creating a non-inflationary cryptocurrency.
This means that your supply will be limited, it will not be possible to “print” more BTC, as is done with fiat currencies. There are 21 million Bitcoins in all, of which more than 85% have already been mined (18,210,325 BTC).
If Bitcoin is just over 11 years old and more than 85% of its supply has already been mined, mining should end soon, right? No, and for that there is halving. For every 210,000 blocks (that is, there is no specific time period) the rewards obtained by mining Bitcoin are reduced by half.
This means that as of May 2020, Bitcoin’s third halving event, only 6.25 BTC will be obtained with the resolution of each block, reducing the amount of Bitcoins obtained daily from 1,800 to 900 BTC. In all, there will be 64 halvings, the last of which is expected to occur in 2140.
Although halving is calculated according to the number of blocks resolved, the estimate is that the event occurs every four years.
So what is Bitcoin halving? It is the mechanism foreseen in the protocol to prevent cryptocurrency inflation, ensuring that crypto values increase driven by a mercantile fundamental, which is the law of supply and demand.
And when will the Bitcoins be mined?
The network’s miners will be remunerated through transaction fees, as with the proof of participation model. Note that this no longer generates Bitcoins in circulation, it just “wipes” the amount that will be traded and delivers a small part to the miners.
Thus, there is no escape: only 21 million Bitcoins will exist on the market. The expectation is that with the increase in use cases and the growing need for Bitcoin to use the tools, the currency’s appreciation will increase – that is, the demand will increase and the supply will remain the same.
What happens to mining?
Well, as predicted by mining experts like Rocelo Lopes, CEO of the CoinPY mining pool, this halving marks the definitive end of “home mining”. In view of the high energy and maintenance costs of the operation, it is no longer advantageous to mine Bitcoin without placing the equipment in a mining pool.
The statement was made during an episode of the Decentralized Debate program, shown on the YouTube channel Dash Dinheiro Digital. Other professionals in the field, such as the journalist for Cointelegraph Brasil Cassio Gusson, followed the same line as Lopes.
In addition, the mining pools themselves will have to adapt to halving. Bitmain, the largest manufacturer of mining hardware and one of the largest Bitcoin mining pools, initiated a mass layoff before halving with cost savings in mind.
Thus, greater professionalization of the mining industry is expected after Bitcoin’s third halving, along with an effort to make operations leaner.
What should investors expect?
This is a delicate point. One of the trends of past halvings, which is the Bitcoin appreciation six months before the event, did not materialize the event scheduled to take place in May.
In addition, the crypto market as a whole is very different from what it was during the past two halvings. It is difficult to pinpoint the movements in Bitcoin’s value before halving.
There are many opinions of experts, such as an appreciation of up to US $ 50,000 after halving, contrasted by a prediction that says not to create expectations of appreciation after the event. Even CriptoFácil has already published a video on the topic, talking about the possibility of appreciation, while highlighting its uncertainty.
The important thing is not to create expectations of enrichment based on halving, but to remain alert if they appear.