2016 BitCoin Halving and its EffectsJuly 9, 2016
After months of anxious anticipation, the biggest moment in the 2016 BitCoin calendar has arrived with the halving process officially under way. The same will result in an important change in the way this digital currency and its bedrock P2P network function – instead of being rewarded 25 BTC per every block they mine, the miners will now attain 12.5 BTC, which is where the name of the event originated.
To some this might sound like a disaster for all who are active in the hashing process, mainly individual mining companies and mining pools, but the same event way incorporated into the very core of the BitCoin network. The mechanism that was utilized to activate this process comes in the form of the idea that there should never be more than 21 million BTC in circulation. Because of this, the BitCoin community actually embraced the process, with many places hosting the so-called “halving parties” to usher in the change.
But naturally, many people, including ordinary citizens who use BitCoin for things like online gambling or a regular remittance process, wonder what effect will this have on their activities. A big element of potential confusion comes from the fact that traditional currencies operate without anything like the halving.
There are devaluation and revaluation, which might sound similar, but essentially, halving is a mechanism that is one of the essential pillars of BitCoin as a cryptocurrency and a tightly predefined digital entity. All of this means that the event is good news for everyone, covering end users, developers and miners themselves; here are the reasons why halving helps BitCoin survive and expand.
The Halving History
When the network went live, its creator Satoshi Nakamoto set up a system where for every 210,000 blocks that have been mined, the reward for their miners should be cut in half. Initially, the reward was 50 BTC per a block mined in the network. Since then, the halving had taken place once in November 2012, a year before the big crash, when it brought down the reward to the recent 25 BTC.
In the future, once the process goes through an additional 62 halving events, the reward for mining should be equal to zero. As the network currently stands, the final halving should not come about in the next 100 years. But in spite of this fact, 75% of all the BTC that should ever exist have already been mined up to this point.
All of this might sound confusing and strangely counterintuitive, but one of the key reasons why Satoshi Nakamoto made BitCoin, whoever he, she or they might be, was to circumvent the issues inherent to traditional currencies. As entities that are governed by a huge range of formal and informal factors, any national currency, including the biggest and most stable ones, is exceedingly vulnerable to influences that are completely transparent and hard to gauge for everyone else apart from a handful of insiders.
Halving is one of the most important factors that were designed to safeguard BitCoin’s linear growth in the sense of its infrastructure and parties involved in the mining process. Nakamoto figured out that once the sufficient number of coins entered circulation, their appeal to the broader public will naturally grow from the simple supply and demand standpoint of trading economics.
At the same time, thanks to the fact that a single BTC is still also a currency, these trading impulses latch on to one another, allowing for spectacular expansion in its value related to traditional currencies, but also dramatic falls. However, this is not a sign of weakness for the currency, but a clear showing off its open an unregulated nature, which is at the same time immune problems of the traditionally regulated currencies.
Since the dawn of the online age, many examples, from digital citizenship programs to E-Sports federations, show that loosely regulated structures can not only survive, but also thrive. BitCoin demonstrated the same thing once again with this event and the effects it will have on the community and BTC users.
Aside from the history and the overall effects that are expected, there is the question of the direct user impact. In an ideal theoretical scenario, the price of BTC compared to traditional currencies should double. This would, in theory, compensate the bigger energy expenditure needed to mine a single BTC and the fact that the miners should have their revenue cut in half.
But, there is little doubt that this scenario will not play out in this manner, mainly because of the interwoven complexities in the individual currencies and their connections to BTC. That is why many experts are more interested in the trend of the price change than the immediate response from the global market.
Additionally, because of the fact that the halving event was expected for most of 2016 so far, the recent rise in its value is most probably the direct result of these expectations. Also, it is important to take into consideration the overall instability that this summer is so far having on the markets. With Brexit results still uncertain, the euro is looking to find its footing for the expected repeat of the problems in the Euro block southern members, primarily Greece.
Because anything is on the table at this point, it could be expected that the bigger pressures on the Eurozone will force the hand of some financial institutions to speed up the BitCoin integration into their financial system. This event alone would be able to boost the price of BitCoin greatly, even though it might come at a time of a high euro instability.
A Healthy Environment
On the other side of the globe, China is, as always, a big factor in all BitCoin calculations. With a majority of mining resources located in mainland China and a strong market, any devaluation of Yuan would boost the price equally effectively as the changes in the Eurozone legislation. While completely unrelated to the halving, this would also make the BTC price rise globally.
In practically any scenario, the event will most likely add to the overall strengthening of the BitCoin network. Currently, it seems that no matter where the chips fall for the global economy and market movement, the BTC price is on the rise. This is excellent news for anyone who is in the possession of this digital currency, but also for all those who see a big chance for the advancement of the FinTech sector across the entire globe.