Cryptocurrency mining
Why is this happening?
This process is one of the main features of bitcoin that Satoshi Nakamoto never had time to explain, as well as why he limited the total supply to twenty-one million units. Some speculate that it is nothing more than a regular financial product, starting with a block subsidy of 50 BTC, which is halved every 210,000 blocks.
Having a limited supply means that the currency will not be prone to depreciation in the long term. This contrasts it sharply with fiat money, which loses its purchasing power over time when new units come into circulation.
It also makes sense to limit the speed at which participants can mine coins. Consider the fact that 50% was generated by the block at 210,000 (i.e. by 2012). If the subsidy had remained at the same level, all units would have been mined by 2016.
The halving mechanism provides an economic incentive for more than 100 years. Thanks to this, the bitcoin system is given enough time to attract users, in order to develop a domestic market for transaction validation fees.
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What does halving affect?
Those who suffer the most from halving are miners. This is because the blockchain subsidy makes up a large part of their income. When halving occurs, miners start to receive only half of their reward for a similar amount of work. Also, their remuneration consists of transaction fees, but to date, this amount is only a fraction of the reward per block.
Thus, halving may make mining unprofitable for a certain category of participants. It is not yet known how this may affect the industry as a whole. However, a reduction in block rewards could lead to further centralisation of mining pools or simply help to develop more efficient mining implementations.
If bitcoin continues to rely on the Proof of Work algorithm, the cost of fees will need to increase in order to maintain mining profitability. Such a scenario is quite possible if blocks start to include more transactions. If there are a large number of transactions on hold, the transactions with higher fees will go into processing first.
Historically, a sharp rise in the value of bitcoin has been accompanied with halving. There is not much data on this as it has only happened twice. Many attribute this price movement to a shortage of bitcoins in the market and the halving of new coin inflows. Proponents of this theory believe that after the May 2020 event, the price of the first cryptocurrency will skyrocket again.
The other part of users disagree, arguing that the halving news has already affected the market (see details in the efficient market hypothesis). Although this development comes as a surprise, participants have known for more than a decade that the block fee will be reduced in May 2020. It is also often mentioned that past rapid growth is partly due to the fact that the industry was extremely underdeveloped during the first two halffings. The market has now become much more popular, offering sophisticated trading instruments, thereby accommodating a wider range of investors.
When is the next bitcoin halving?
The next halving is expected in May 2020, after which the reward for mining a block will drop to 6.25 BTC. Watch our countdown to bitcoin halving on Binance Academy.
Common misconceptions about bitcoin
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Is bitcoin an anonymous currency?
Is bitcoin a scam?
Is bitcoin a bubble?
Does bitcoin use encryption?
Is bitcoin an anonymous currency?
To answer briefly, no. Bitcoin may appear to be anonymous at first, but that is fundamentally incorrect. Bitcoin's blockchain is publicly accessible, and anyone can view all of the transactions on the network. Your identity is not linked to your wallet addresses on the blockchain, but an outside viewer with the necessary resources could potentially link them together. It would be more accurate to state that bitcoin is an alias currency. Bitcoin addresses are visible to all, but the names of their owners are not.
However, the system is relatively private, and there are techniques that will make it even more difficult for outside viewers to determine the movements of your bitcoins. Freely available technology can create plausible deniability to "break the link" between addresses. Moreover, future upgrades could significantly increase privacy, for an example see. "Introduction to Confidential Transactions".
Is Bitcoin a scam?
The answer is no. Just like paper money, bitcoin can be used in illegal activities, but that does not make it a scam.
Bitcoin is a digital currency that has no single counter.