DeFi
September 28, 2022
What is Token Burn and it's effects on price
An A-Z guide on token burning and how it is largely impacting the cryptocurrency industry.
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The words cryptocurrencies, bitcoin, etc, have become popular all around the world in a very short time. Cryptocurrency picked up the pace in the last decade or so and it has never since looked back. Even though the market started slow, it has become one of the most talked-about topics in recent times.
One of the things that played a pivotal role in taking the crypto world to such heights was Bitcoin. Any person who knows what cryptocurrency is would know what Bitcoin is. Some people even hear about Bitcoins before they hear or understand what cryptocurrencies are, that is how popular Bitcoin has become in this age.
It was not an easy thing for Bitcoin to achieve so much fame. It is because of that fame that the price of Bitcoin breaks new records every now and then. Something that helped Bitcoin to reach these heights was the process known as Bitcoin Halving. This article will discuss what bitcoin halving exactly is along with why it happens and how it works. So let us begin.
If you go by the definition, Bitcoin halving is a process that happens every 4 years where the amount of Bitcoin that gets awarded to the miners is decreased by half. This will keep happening every 4 years until all the 21 million Bitcoins have been mined. The estimated year when this should get completed is in 2140.
The Bitcoin halving is a process that helps to make Bitcoin scarce and inflation-resistant. Bitcoin is not something that can be mined endlessly, the same as gold in the real world, it has got to end one day. There are only going to be 21 million Bitcoins when all is said and done.
In the year 2020, around 2.5 million Bitcoins were left to be mined. So as you know, the amount of new Bitcoin that gets added to the crypto world is reduced by half every 4 years, resulting in halving. At the start of 2020, 12.5 new Bitcoins were being added to the network every 10 minutes which was then halved to 6.25 Bitcoins come May.
In the year 2024, this number will drop down to 3.125 Bitcoins and by the end of 2140, every Bitcoin will be mined. Bitcoin Halving is a very essential event in the life of Bitcoin. Why is it so important though? Let us find out.
Bitcoin was created in 2009 with the purpose of replacing fiat currencies and the centralized banking system of the world. The reason behind creating Bitcoin is convincing enough considering how fiat currency works.
Fiat currency is controlled by the government and its interests. They decide how much money they want to print and bring into circulation and hence there is no fixed market supply. This is what makes any fiat currency inflationary.
The more money the government prints, the lesser the value of each note becomes. Therefore every year we see the inflation rates going up and up. On the other hand Bitcoin is different. By nature, Bitcoin is designed to be a deflationary currency.
If Bitcoin's value stays the same, it will be subject to inflation. However, due to Bitcoin halving, its price is increasing over time. Now that we know why the halving occurs, let's go ahead and see how bitcoin halving happens.
Bitcoin is finite which means that the number of Bitcoins that can be mined are limited. Only 21 million Bitcoins can ever be in circulation, out of which only about 2.5 million Bitcoins are yet to be mined as we already mentioned.
All cryptocurrencies work on some sort of consensus mechanisms and the Bitcoin uses Proof-of-Work system to verify new transactions and add them into a new block. If you want to know more about Proof-of-Work, check out our other articles.
Now the way the Proof-of-Work system works is, miners from all around the world participate to verify transactions. As a reward, they get freshly minted Bitcoins from the blockchain. As per Bircoin’s consensus system, the network is supposed to add a new block every 10 minutes.
However, as more miners participate in mining bitcoin, more computational power is established and hence the probability of mining new Bitcoins in less than 10 minutes increases. Thus, it is possible that the supply of bitcoin surpasses the demand and thus leading to inflation.
To prevent this, bitcoin's blockchain makes use of an algorithm which adjusts the difficulty of mathematical equations which are required to be solved by the miners in order to add a new block. Thus making sure that a new block is added every minute irrespective of the number of miners present.
This algorithm updates the level of difficulty of equations every two weeks depending upon the number of miners. However, do note that Bitcoin doesn’t count time in terms of minutes or hours. Instead the time is calculated in terms of the number of blocks added.
Therefore, the Bitcoin reward is halved after every 210,000 blocks i.e. about every 4 years. Thus, the Bitcoin halving occurs after every 4 years where the bitcoin reward is cut into half. Let’s see the previous bitcoin halving events along with the upcoming 2024 halving.
2009-2012= 50 Bitcoins
2012-2016= 25 Bitcoins
2016-2020= 12.5 Bitcoins
2020-2024= 6.25 Bitcoins
After upcoming 2024 halving event the rewards will be further halved:
2024-2028= 3.125 Bitcoins
The last or the latest Bitcoin halving took place back in the month of May in 2020. Dated 11th May at 7:23:43 PM GMT. This was the third bitcoin halving and the block height was about 630,000 with a block reward of 6.25 bitcoin, compared to other halves the rewards are reduced gradually.
It is observed that bitcoin halving causes a gradual drop in rewards for creating new blocks. It is also predicted that for the next halving in 2024, the reward will be reduced to 3.125 bitcoin. By halving every four years, the inflation rate of bitcoin decreases by half.
The answer to this question is quite straightforward, as the first bitcoin halving was dated back in november 2012, and after that every four year the bitcoin reward is halved. The market cap of bitcoin is 21 million bitcoins where 19 million are already circulating in the market. After mining all the coins, the halving will be completely ceased.
Winding up this article, hope you learned a bit from this article. We would recommend you to do all the proper research from your side, to get a better understanding about the bitcoin market. Doing a deep and thorough research will help you to get a better understanding about what step you should take in the future.
Apart from that, if you feel that we missed out on any topic in this article, feel free to mention it in our comment section. Even if you have any doubt regarding this topic, you can reach out to us and we will surely help you out. If you liked this article, you can check out more from our website, make sure to stay tuned with us!
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