Bitcoin halving in a week: What is it and why does it matter?

Bitcoin halving is a phenomenon that takes place every four years and is of great importance to the entire community cryptocurrency. Its influence is felt both in the technical aspects of the Bitcoin network and in the financial markets. In this article, we will look at what exactly a halving is, why it is important and what we can expect from the next one, which will most likely take place in 7 days on April 20.

What is Bitcoin halving?

Halving is the process of reducing the rewards for mining new blocks Bitcoin by half. When Satoshi Nakamoto, the mysterious creator of Bitcoin, was designing the protocol, he decided that the reward for miners for adding new blocks to blockchaina will be systematically reduced. Initially it was 50 BTC per block. Every 210,000 blocks, or approximately every four years, this reward is halved. In 2020, this reward dropped to 6.25 BTC per block, and will now drop to 3,125 BTC.

Why is halving important?

The main goal of halving is to control inflation and limit the supply of new bitcoins in order to increase their value. Since Bitcoin has a limited supply of 21 million coins, halvings are a key element in maintaining this scarcity and preventing oversupply from degrading its value (unlike the traditional financial system).

Halving also affects miners, who must adjust to reduced rewards. Over time, the cost of mining Bitcoin increases while the reward for mining a block decreases, prompting miners to be more efficient and potentially leading to consolidation in the mining industry. This, in turn, is a mechanism that forces the most efficient use of network resources.

Market effects of Bitcoin halving

From a market perspective, halvings often lead to increased Bitcoin price volatility. Pre- and post-halving price increases have been observed in the past, although future results may vary. Investors and speculators often try to predict the effects of halving, which can lead to speculative price increases. As a rule, however, Bitcoin established a new historical high after the halving. Now it happened before the halving, which for many raises a question mark as to whether it will be possible to repeat this feat after this event.