The Potential Impact of the Next Bitcoin Halving
Although the precise date of the next Bitcoin halving is hard to pinpoint, it is expected to occur during the week of May 18, 2020. This halving may result in increased demand in Bitcoin, and at a higher price. Understandably, there is a great deal of conversation on crypto news websites and Twitter threads. There is one primary topic; the May halving that will reduce the number of newly minted Bitcoin by half. With fewer Bitcoin produced, there is intense speculation that both the demand and the price will be higher. To understand why Bitcoin investors are thrilled, a trip into the past is necessary.
Bitcoin Initial Intention
From the outset, Bitcoin was intended to be a finite commodity that became increasingly scarce over time. Think of Bitcoin as if it was a gold mine. As veins are found and tapped, the mine itself becomes less efficient. Bitcoin mining is similar. It, too, becomes more difficult over time. Bitcoin miners must solve more difficult calculations, and the rewards become smaller.
The Bitcoin network was first launched in 2009. Using an “off the shelf” computer, a miner stood a good chance of winning what was then a 50 BTC block reward. Fast-forward 11 years. Today, the block reward is 12.5 BTC, and the only possibility of earning it is to invest in energy-intensive, custom-built mining rigs. In mid-May, when the next halving occurs, the reward for success will be 6.25 BTC.
The 2020 Halving Will Be Different
It has been four years since the last Bitcoin halving. This event led to significant increases in the price of Bitcoin’s. Not everyone is of the opinion that the 2020 halving will result in similar price adjustments. The initial halving took place in 2012. At that time, few people had even heard of Bitcoin. The upcoming halving will be different. Although the public at large may not understand cryptocurrency, it is widely covered by knowledgeable journalists and financial reporters. To the uninitiated, the upcoming halving will remain unclear. However, it does have the potential of bringing new faces into the cryptocurrency and blockchain world.
What Impact Will High Mining Costs Have?
Those currently involved in the world of cryptocurrency may find the 6.25 BTC reward is not to their liking. Of course, miners will certainly welcome an increased price, but there are doubts about whether the theoretical price increase can offset what is expected to be a doubling in the cost of Bitcoin mining. Miners using old, outdated rigs and those paying high electricity costs may find their break-even cost to run between $7,600 up to a staggering $13,000. These grossly increased mining costs may force many current miners to leave the network. For those who remain, the larger market share may be good news.
Security is Paramount
As Bitcoin grows scarcer, security for those looking to hold or transact becomes more of an issue. For new users, it is essential that they understand and follow the rules for cryptocurrency security. A lost key or a lost code means lost currency. For new entrants, as well as experienced users, a wallet service is a valuable safety mechanism.