How Does the Bitcoin Halving Affect the Crypto Market

How Does the Bitcoin Halving Affect the Crypto Market

Crypto enthusiasts are familiar with the term “halving.” It is among the important events of Bitcoin’s blockchain process. Halving plays a vital role in creating inflation of crypto prices by limiting the number of bitcoins available, thus maintaining demand for the cryptocurrency at a steady rate. The halving process affects all the players in Bitcoin’s crypto market.

How Does Bitcoin Operate?

Bitcoin’s blockchain technology comprises several computers that operate its software and record every transaction on the network. These computers are also known as nodes and can either accept or deny a transaction. Before a transaction goes through, these nodes confirm its validity by counter-checking multiple times.

Roughly 14,616 nodes are involved in operating Bitcoin’s code, and they maintain its stability. Anyone with the storage capacity to download the blockchain’s history can be part of the network. However, not everyone involved in the process is a bitcoin miner.

What Is Mining?

Simply put, the process involves using a computer to access the blockchain by validating and processing transactions. Bitcoin’s system is known as the proof of work (PoW), whereby miners are rewarded for their efforts in carrying out transactions. The transaction efforts can be summarised as the time spent solving difficult equations and operating the hardware.

What Is Halving?

Halving refers to how transaction rewards for miners are reduced by half after 210,000 blocks have been mined. This process of halving the rate of circulated bitcoins is the crypto’s clever way of maintaining inflation until all the coins are in circulation.

It is projected that the current system of rewarding miners will remain in place until the proposed maximum of 21 million has been attained. This might take some time and could happen around 2140.

How Will Halving Impact the Crypto Market?

By reducing the number of coins released into circulation, halving will limit the supply of new coins. This translates to higher demand for the coins. As with other commodities like gold that have limited supply, investors will suffer the same repercussions of higher prices and increased demand.

If halving fails to increase bitcoins’ price and demand, it will cause miners to be less interested. Thus, Bitcoin came up with a means of making the mining process harder so that the rewards act as an incentive to miners if the value has not risen. When bitcoins are released and the returns are not as good, the difficulty of carrying out a transaction is also reduced.