WHAT IS BITCOIN HALVING?

How Halving Works and Why It’s Needed

The word halving comes from the English verb to halve, that is, to divide in half. Here it refers to a regular procedure for cutting in half the reward received by miners for mining a new block. Blocks are units of information in the blockchain that contain data about transactions made on the network. The generation of new blocks is necessary for the blockchain network to function properly as well as for the stable circulation of the asset itself.

The mining of blocks is a complex and time-consuming computational process requiring the use of high-performance equipment and high energy consumption. This is what is known as mining. Each successfully mined block brings a reward to the miner, with the amount of the remuneration fixed by the rules of the network.

Reducing the amount of this reward is called halving. It occurs after the mining of every 210,000 blocks, thereby lowering the influx of new coins into the market. In terms of Bitcoin, its total issue is limited to 21 million coins, with over 19.5 million having already been mined as of today.

Today, the remuneration amount for each block extracted is 6.25 BTC, while this figure will drop to 3.125 BTC in April 2024.

Halving, or reducing rewards for mining a new block, ensures an increase in the market value of Bitcoin, as against the backdrop of steadily growing demand it reduces the number of new coins entering the market. This mechanism is beneficial not only to existing asset holders, but also to the miners themselves, because it is designed to increase the amount of their remuneration in monetary terms, attracting more and more new capacities, which ultimately has a positive effect on the functioning of the network.

Historical data confirms the effectiveness of this logic. The graph of the ratio of the cost of Bitcoin and the remuneration of miners clearly demonstrates that increases in the cost of Bitcoin have always led to an increase in mining profitability, despite the volume of rewards for mining a block having already decreased three times (in 2012, 2016, and 2020).

Effect of Halving on Bitcoin Price

Based on previous charts regarding price changes in the globe’s main cryptocurrency, analysts often use the concept of cycles. For instance, if we use the intervals between the previous halvings as a cycle, we can clearly distinguish three comparable intervals. The 1st cycle is from November 2012 to July 2016, the 2nd is from July 2016 to May 2020, and the third is from May 2020 to April of this year, when the next reduction in remuneration is set to occur.

Each time, the halving that occurred gave rise to a new Bitcoin rally, ending with an update of the historical maximum of the asset price approximately 12-18 months after the decrease in the volume of the block reward.

After a phase of intense growth, the market faced a significant correction every time, peaking in 2015, 2018, and at the end of 2022. With a new halving on the horizon and, consequently, the end of the current cycle, Bitcoin has each time begun to gradually win back the positions left, while starting to move to the next absolute maximum.

A similar trend emerged at the end of the current, third cycle. Since the beginning of 2023, the bitcoin price chart has headed for the $30,000 mark, and in December it broke the $40,000 mark for the first time in a year and a half.

How Halving Will Affect Miner Income

Reducing the amount of rewards for miners always presents a certain challenge, having an impact on the internal economy of market participants.

Despite the expected further increase in the value of Bitcoin, repeated in each of the previous cycles, being intended to compensate for the effect of changes, many analysts predict an increased role for large players controlling significant amounts of computing power.

The graph of the complexity of the Bitcoin network shows that competition on the market reached an absolute maximum in 2023 and continues to grow. This creates additional difficulties for new entrants to enter the market, leaving the days of mining “at home” far behind.

Experts do not exclude that after the April halving, some capacities may no longer be in play, as they will turn out to be unprofitable under these new circumstances. At the same time, the largest players with high volumes of capacity and access to the most inexpensive energy resources have every chance of taking up this vacant market share.

With these conditions in mind, the GoMining team plans to strengthen its strategic position. According to the roadmap for 2024, the total hashrate of the project will be increased to 10,000,000 TH/s by Q3 2024, with it reaching 25,000,000 TH/s a year later.

The cost of electricity is another important factor for ensuring the sustainability of mining infrastructure during market changes. Thanks to the successful choice of data center locations, the owners of GoMining digital miners have access to mining using the most affordable electrical resources on the global market, where a kilowatt of energy costs $0.05 per kWh. For comparison, according to Statista, the average cost of electricity in 2023 in Britain was $0.44 kWh, $0.17 kWh in the United States, and $0.08 kWh in China and the United Arab Emirates.

Source : gmt.io
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