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July 18, 2024
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Bitcoin

What It Is And What It Means For Crypto Prices?


Topline

Bitcoin has soared to new record highs in recent weeks and enthusiasts feel it is poised to grow even further with an upcoming “halving,” a key event written into the foundations of the cryptocurrency to limit supply that has historically coincided with elevated prices and boosted attention to the crypto sector.

Key Facts

Bitcoin is built on a decentralized computer network, or distributed public ledger, that records the details of every transaction related to the cryptocurrency in discrete “blocks” of information connected in a chain.

New blocks are added to this blockchain in a process called mining, which involves solving complex math problems and rewards new bitcoin to miners who undertake the computationally-demanding and energy-intensive process.

The bitcoin reward minted every time a new block is added to the network decreases over time—an intentional feature designed to limit supply by slowing down the rate of production—halving every time 210,000 blocks are added to the network.

Three bitcoin halvings have happened in the past, in 2012, 2016 and 2020, iteratively cutting the reward for mining a block from 50 bitcoin to 25, 12.5 and 6.25 bitcoin.

While there is no specific date hardwired into the system, the next halving event is expected to happen at some point in April 2024, when the reward for mining each block will be reduced to 3.125 bitcoin.

How Does Halving Affect The Price Of Bitcoin?

Bitcoin halving only affects the rate at which new bitcoin is minted and does not change the amount or value of the existing tokens in circulation. The volatile and speculative nature of the crypto markets make it hard to ascertain whether any changes in value were down to halving events or other factors. Crypto enthusiasts point to historic rises in bitcoin prices before and after previous halving events, though there is little evidence the halving, as opposed to say monetary policy or changes in consumer behavior, was responsible. The economy of bitcoin mining, however, will almost certainly change after the halving, as double the amount of energy and resources—which are already significant—will be required to earn the same amount of bitcoin. The halving could drive miners to lower costs and improve efficiency in their operations.

News Peg

Bitcoin is worth about $1.4 trillion, around half of the $2.9 trillion cryptocurrency market. It has experienced an impressive rally in recent weeks, with gains this year of around 80%, and soared to an all-time high of more than $72,000. Other cryptocurrencies like ether, the second largest by market capitalization, have also reached levels not seen in two years as the market rebounds from a series of crashes and scandals including the collapse of key institutions like Sam Bankman-Fried’s FTX, Celsius and Three Arrows and the failure of major networks like terraUSD (UST) and luna, which erased billions in value. While it’s possible the ongoing rally is driven by the impending halving event, other factors, notably investor enthusiasm for cryptocurrency and the approval of bitcoin exchange-traded funds (ETFs), could also be playing a role. Current high prices could potentially already factor in any price rise anticipated by the halving event and there is no guarantee prices would continue to rise afterwards.

Big Number

21 million. That’s the maximum supply of bitcoins there can ever be. The currency cap is one of the key principles underlying the cryptocurrency project. Bitcoin architect Satoshi Nakamoto—a pseudonym—intended it, and the halving, as a mechanism to curb the inflation often seen in traditional currencies. More than 19 million bitcoins are in circulation at the moment. Presuming halving continues at a rate of around once every four years, bitcoin will continue to be minted until roughly 2140.

Further Reading

MORE FROM FORBESBitcoin Hits New Record High Above $72,000 As Crypto Rally Continues
MORE FROM FORBESSam Altman’s Worldcoin Soars After Launch Of OpenAI’s ‘Sora’ Video Tool
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