Supply and demand is the law that controls all markets, including those of bitcoins. See below, what is it halving and how this action directly influences the values presented in the negotiations of the bitcoins. The process would be something close to inducing an inflation in the cryptocurrency.
Does Halving Create Inflation?
Pursuing maintenance would be the best definition, but intentional control ends up creating inflation. THE halving do bitcoin refers to an event in which the pace of circulation of new units is reduced by half.
It is part of a strategy to keep the maximum supply fixed, in contrast to fiat — paper — currencies such as the US dollar, which have “unlimited” supplies and lose value when governments print too many banknotes.
THE halving is one of the most important events in the blockchain do bitcoin. It induces inflation in the price of cryptocurrency, reducing the number in circulation and increasing demand.
The action has implications for all stakeholders in the ecosystem of the bitcoin.
How does bitcoin halving work?
I will summarize how the halving, but first it is necessary to understand how cryptocurrency mining works.
Mining is a competition. Miners are racing to be the first to add new blocks to the blockchain. For each block added, they receive a certain number of new ones. bitcoins As a reward.
the creator of bitcoin programmed the block reward to be cut in half at regular intervals. The reward for mining a block is reduced for every 210,000 blocks added.
At the current speed, the halving do bitcoin has been occurring at approximately four-year intervals. Theoretically, since 21 million bitcoins have been created, it will no longer be possible to create new ones.
So can we say that the halving is an action to increase the longevity of bitcoin? In a more superficial way, yes, but the idea is to improve the value of the miners’ reward, despite the limit of new coins being closer and closer.
The function of process
Without the existence of a halving to increase demand and price, miners would have no incentive. The reward for completing the transactions would be lower and the value of the bitcoin would not be high enough.
To avoid this, the bitcoin has a process to change the difficulty required to obtain mining rewards, or in other words, the mining difficulty of a transaction.
If the reward has been halved and the value of the bitcoin has not increased, the mining difficulty would be reduced to keep miners incentivized. This means that the amount released as a reward is still lower, but the difficulty of processing a transaction is reduced.
This process proved successful twice. So far, the results of these halving it was a rise in price followed by a big drop. The dips that followed these gains, however, still kept prices higher than before these events.
The main involved
The network of bitcoin consists of several characters, but we can unite in two focal points.
THE halving usually results in rising cryptocurrency prices due to reduced supply and increasing demand, which means it is good news for investors.
The trading activity in blockchain of cryptocurrency increases before halving. However, the pace of price increases differs based on the logistics and conditions of each reduction.
The effect for them on the ecosystem of the bitcoin it’s a little more complicated. On the one hand, a dwindling supply of the currency increases demand and prices. However, smaller rewards can also make it harder for individual or small miners to survive. pools mining companies, as they find it difficult to compete with large specialized organizations.
The mining capacity of bitcoin it is cyclical with respect to its price, but in opposite directions. Thus, when the price of cryptocurrency increases, the number of miners in its ecosystem decreases and vice versa. THE halving is characterized by a price increase and can also increase the probability of a “51% attack” on the bitcoin network. This is due to the fact that your network is less secure.
In general terms, the halving is a predetermined rule that is part of the self-management, apparently chaotic, necessary to maintain the interest in the search and the security that the bitcoin need.
With information: Business insider, Investopedia.