[Bit]coin flipping: The countdown for Bitcoin halving has begun
Isolated scissors is cutting a penny in half image via Shutterstock
Bitcoin miners make a decent living from mining bitcoins —some can even make more than $1 million per month, as Motherboard pointed out in early 2015. Although they come across problems such as huge electricity bills and systems that overheat very easily, they are about to face the biggest problem of them all: Bitcoin halving. Let’s see what this means for Bitcoin miners, as well as for the rest of the Bitcoin enthusiasts.
History lesson: Why is Bitcoin halving necessary?
The technology behind Bitcoin is full of balances and checks to eliminate (as much as possible) fraud. The process of mining can prevent that from happening since all Bitcoin transactions are stored on a “block” — each block contains transactions and it is the Bitcoin miners’ job to confirm the authenticity of the transactions. The corresponding data of every transaction is then used to solve a math problem —the string of digits which carries the transaction information within the block is called a “hash”. After completion, the hash ties back to the last block; this is how the transaction record is created. However, it is worth mentioning that new bitcoins cannot come into circulation if a block is not completed.
The problem with the Bitcoin halving is that it cuts in half the reward Bitcoin miners receive when they confirm blocks. Today, there are nearly 16 million bitcoin in circulation (out of a total of 21 million) and approximately 3,600 bitcoins are created every day. To make sure the (finite!) supply is not reached, the Bitcoin halving cuts the mining reward in half after every 210,000.
It appears that the event will occur on July 9, at about 11:23 UTC. The last Bitcoin halving happened on November 28, 2012.
What does this milestone mean?
The other side of the coin is that it gets harder for Bitcoin miners to win the reward once the Bitcoin halving occurs because they have to compete with one another (in the code) to win the reward —this is what Satoshi Nakamoto, the father of this cryptocurrency, did to slow things down and make sure the 21 million cap is not reached so easily.
As more hardware is added to the network (some miners first see this as a hobby, then transform it into a full-time job), the difficulty increases too. The hashrate is the detail that could turn the upcoming halving into a success or a disaster, but if the previous Bitcoin halving helped us learn anything, it’s this: a devastating decrease in hashrate may happen, but chances are that it won’t.
If Bitcoin is anything like other commodities, the price should go up as the supply is reduced. Still, this lesson should be taken with a grain of salt because Bitcoin has proved time and time again that it is a special type of commodity.
Surely we could speculate on what will happen after the Bitcoin halving, but the volatility of this digital currency prevents us from making an educated guess; Bitcoin was still in its infancy when the first halving occurred, which means that what happened then may not happen again.