Bitcoin Halving Highlights Its Benefits in a World with Financial Uncertainty
It’s no secret that the price of cryptocurrencies can be extremely volatile. As the poster child, Bitcoin is an excellent example of this, as highlighted in the past month where Bitcoin’s price has seen a low of around US$6,500, a high of just over US$10,000 and is currently sitting at about US$8,750 at time of writing (thought this changes by the minute). Between the 9th and 10th of May the price dropped US$1,500 in just 24 hours. There are many causes of the volatility cryptocurrencies experience, from changes in regulations, fear and misunderstanding, to a relatively small market size (compared to more traditional markets) and the influence of decisions taken by people holding large amounts of cryptocurrency; however, the recent price fluctuations has been attributed by many to the anticipation of Bitcoin halving event that took place on the 11th of May.
Bitcoin halving is an event written into Bitcoin’s code that takes place every time an additional 210,000 blocks have been mined - which has been approximately every four years so far - and halves the Bitcoin reward that miners get from adding new blocks to the chain. Eventually, when the total number of Bitcoin reaches 21,000,000 the reward will drop to 0, marking the upper limit of the number of Bitcoin that can ever exist. By limiting the total number that can exist, Bitcoin’s scarcity and therefore value is hard-coded, unable to be influenced by any controller or governing body implementing monetary policies such as money printing and quantitative easing. This property of being immune to outside manipulation was perhaps one of the driving factors behind its creation, hinted at when Satoshi Nakamoto released it with a reference to the banking crisis, and has given rise to much of Bitcoin’s comparison to a ‘digital gold’. This recent event marks 93.75% of all Bitcoins having been mined and the reduction of the Bitcoins reward given to a miner reducing from 12.5 to 6.25, although the final one is not expected to be mined until sometime in 2040. Historically, the halving events have heralded a period of price instability which ends in an overall rise of the price once the initial volatility ends. However, since the halving happened on the 11th, there seems to be a fairly stable upward trend compared to the rapid ups and downs of the past week. Despite this, the longer term effects of the halving remain to be seen and experts may be able to draw conclusions in the following weeks of how this latest development will play out. As the world looks likely to experience another economic downturn on the scale of the 2008 crisis due to the effects of the COVID-19 coronavirus pandemic, the benefits of a global, immutable, non-government controlled or manipulable currency such as Bitcoin could very well see a resurgence in popularity as people realize its benefits and remember what it was designed for.