The Bitcoin reward halving

Courtesy: (Élise Dé & Laurent D)

There’s a lot of excitement and confusion about Bitcoin’s upcoming reward halving and the implication on Bitcoin users.

What is the reward halving?

When Bitcoin transactions are transmitted to the Bitcoin network, they are grouped together in blocks which are recorded in the ledger called the blockchain. Nodes (or “miners”) on the Bitcoin network are rewarded in Bitcoin for confirming these blocks of transactions.

The Bitcoin protocol has been programmed to reduce the mining reward every few years, until a point in future where no further Bitcoin will be released to the network.

When Bitcoin was first released, the reward was 50 BTC per block. In 2012 it was reduced to 25 BTC per block, where it currently is, and soon –on Saturday 9 July, 2016– it will be reduced to 12.5 BTC per block.

What will happen to the price of Bitcoin?

That is the ten billion dollar question.

Many Bitcoin investors seem to feel that since the supply gets restricted and with demand growing, or at the very least staying unchanged, the price of Bitcoin should go up. That’s at least, according to the basic economic principles of supply and demand.

It should however be pointed out that it’s not the current supply that will decrease, just the rate of growth that will decrease. Also, the reward halving has been known since day one, so it could very well already be priced in and not affect things at all.

Lastly, it could be useful to look at what happened the last time round. During the previous halving, November 28, 2012, the price only went up by 1.7%, a very normal daily fluctuation.

The most likely thing to happen is probably nothing at all, but as with all price predictions, nobody can definitively say what will happen in future.

The long term trend over the past few years, months and weeks keeps most long term investors very positive and bullish. Rather than looking how the price has moved on the day of the last halving, we should look at how the price has moved since the last halving: a whopping 735.84% on global USD-BTC markets.

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