When Satoshi Nakamoto – whoever he or she is – set up bitcoin in 2009, he did so with the aim that the digital currency would be better in practically every way than the fiat currencies that came before it. Not only would the currency protect holders against theft by private citizens, but it was also hoped that it would eliminate the current monetary policy that slowly inflates the government money, decreasing its value in real terms.
The way Nakamoto envisioned doing this was simple: over time the difficulty of mining new coins would go up, slowly converging on a level so high that no further coins could be minted. Nakamoto hard-coded the bitcoin system to limit the total number of bitcoin that could exist through a series of halving events, with the two most recent in 2012 and 2016. These halving events reduced block rewards every time a miner added a block to the bitcoin blockchain.
The next bitcoin halving is due to arrive sometime in May 2020, depending on the difficulty that miners have harvesting new coins. The bitcoin reward will fall from the current 12.5 bitcoins per block to 6.25. If bitcoin enters more bull runs, then the next bitcoin halving should remain profitable for miners. But price increases don’t materialize, or if a steady price trend does not emerge, then they may no longer want to operate.
So what are the three things that you need to know about bitcoin halving in 2020?
The Number Of New Bitcoins Harvested Every Day Will Fall
The creator(s) of bitcoin wanted to make sure that inflation became a thing of the past. After the Financial Crisis and the clear bias of the government in favor of banks and big business, they saw a need for a currency that couldn’t be manipulated to privilege a few elites at the expense of taxpayers and the unborn. The creator(s) realized that there was a need for a currency that would do away with all of the corruption of the nation-state and ensure that people got to retain the full value of the money in their pocket.
The answer to the problem was to severely limit the amount of the currency that could be produced. The way that bitcoin does this is through reward halving – reducing the bitcoin payment for the completion of a new block. When 210,000 blocks are completed, around May 2020, bitcoin halving will mean a lower reward from the mining of new blocks.
With the current reward of 12.5 bitcoins per block, the block time is 10 minutes, and there are 1,800 newly-minted coins every day. This will fall to just 800 after 2020, due to the halving.
Prices Could Be Unstable Leading To 2020
In the months leading up to December 2017, the price of bitcoin skyrocketed to nearly $20,000. It then promptly crashed, hitting new lows towards the end of 2018, with many commentators sounding the death-knell for the emerging currency.
But bitcoin has a habit of surprising people. Back in 2013, the price of bitcoin rose dramatically as more and more people entered the bitcoin network. It then crashed almost back down to zero before the current bull run caused it to climb once more. Cryptocurrency markets are volatile because many people still don’t know how to price this new asset class adequately. The events we saw in bitcoin over the last couple of years could be a reflection of that.
Bitcoin halving in 2020 may affect how many miners find it profitable to mine the currency. Even with increases in the hash rate – the rate at which bitcoin mining computers can perform operations – a halving will likely disincentivize many of today’s miners from carrying on doing what they’re doing.
The Halving Probably Won’t Affect The Bitcoin Economy
For most people who hold bitcoin, block halvings probably won’t make much of a difference. During the weeks following the previous two halving events, the price of bitcoin in terms of US dollars barely budged, even though the profitability of mining halved. Prices went from around $650 to $675 in the weeks following the 2016 halving.
Garrick Hileman and other experts on the matter suggest that this might have something to do with expectations. Halvings are unlikely to lead to significant movements in price because halving events are already known in advance and the market can accurately predict them.
There is another argument which says that the price of bitcoin will rise because fewer new coins will be mined, though the effects of future reduced supply are probably already accounted for in the present value.