What should you know about halvings and how dangerous is it for Bitcoin owners?
15 December 2023next article
Every Halloween, frivolous children in scary costumes scare us with shouts of “Trick-or-treat!” And almost every four years, respectable guys in expensive suits (or not so much) also scare Bitcoin owners with the words "Halving is coming!". And if on All Saints' Day we gladly part with treats for funny beggars, then on the eve of the change in the amount of reward for the created block, some may panic and lose their assets for nothing. We at Avivi have been working with decentralized networks, including Bitcoin, for many years. And although trading, unlike development, is not a priority for our company, now we will dispel the myth of the "terrible halving" and its consequences.
Why is the news about the halving actively pushed?
Since the beginning of the current year 2023, the value of Bitcoin has more than doubled and from a minimum of $16,000 reached a historical maximum of more than $40,000. During the last weeks of November, almost all the news revolved around this situation, and only the lazy did not give their forecasts for the further development of the situation. However, at the same time, another topic was gaining momentum, which in a few words sounds like "Halving is coming!". Some of the most agile and creative content makers even supported their claims with screenshots of the sharp fluctuations in the cryptocurrency exchange rate that also took place on the exchanges. It seemed to indicate that the value of the coin has already fallen by half, which means that the worst predictions are coming true. However, the only purpose of such "news" is to try to scare people and force them to quickly sell their coins at a lower price.
In fact, to talk about the beginning of halving at the time of writing this article is at least unprofessional: it is not a spontaneous phenomenon, but a predicted and planned algorithm in the code. The upcoming halving is not something new, but just another planned action, without which the existence of this cryptocurrency is simply impossible. Halvings have already occurred in 2012, 2016 and 2020, and the next date is also approximately known — April 2024. But by no means December 2023.
What is halving?
For the best understanding of the situation surrounding halving, the first thing you should know is the exact definition of this phenomenon. It is known and publicly available — it is a reduction of the reward for mining a new block by exactly half. As you know, Bitcoin uses blockchain technology, when all previous information from the network is added to each new block. To solve this task, the machines should perform complex cryptographic operations, for which the system charges miners a reward from the mined coins. The size of the initial reward was simply crazy by today's standards - as much as 50 BTC. However, the total number of Bitcoins is a constant value, and the number of people willing to receive them is variable and rapidly growing. So the network's algorithms set a gradual reduction of the reward over a certain period of time, which is approximately 4 calendar years.
What about other cryptocurrencies? In fact, each of them has something similar, since everywhere is based on a common technology — blockchain. However, much depends on the working protocol and consensus method. Bitcoin works according to the Proof of Work method, where the halving scheme works as it should. While a similar method was used in Ethereum, the reward to miners was also gradually reduced here: 5 ETH per block in 2015, 3 ETH per block in 2017, 2 ETH per block in 2019. However, after the release of the Byzantium hard fork, the reward remained at 2 ETH . And after changing the method to Proof of Stake, mining Ethereum became completely unprofitable, which deprived many people around the world of their earnings. Therefore, halving is currently the most relevant for the Bitcoin network.
Everything is on schedule
The biggest manipulation is the halving time. More precisely, the statement that it begins now. The fact is that a decentralized network does not use real time. For Bitcoin, the calculation period of one block is important, which should not exceed about 10 real minutes, but this period is calculated according to the internal time of the network. The system constantly analyzes mining capacity and adjusts the level of complexity of cryptographic tasks. So three options are possible:
- There are enough powers, so the algorithm remains unchanged;
- Power is lacking, so the algorithm reduces the level of complexity;
- Capacities outweigh the need - the algorithm makes the task more difficult so that the result does not exceed the time frame.
Moreover, every 2016 blocks created, which is roughly equal to two weeks of real time, the Bitcoin network conducts a performance audit and decides the further fate of the difficulty level of the tasks. It usually only grows as the miner community continues to grow. However, there are cases of errors and failures, large-scale problems or other unfavorable factors, to which the system reacts accordingly. Halving occurs regardless of the situation every 210,000 blocks. That is, approximately every 4 years. Now you have made sure that everything is happening strictly according to the defined schedule.
Should we be afraid of halving?
For the average owner of Bitcoin coins, the answer is unequivocal — no. After "X day", they will not have less cryptocurrency, and its value will not drop by 50%. Given the previous halvings, even beginners in this topic could already guess about it.
However, if you are a miner, there are certain risks. In 2024, the block reward will decrease to 3.125 BTC, which may affect the profitability of your business. Especially if your equipment is outdated or energy-intensive.
However, even this is not a reason for panic. After all, look at the Bitcoin rate. It is growing steadily and rapidly. And if the cryptocurrency has strengthened by more than 50% in the current year alone, you are not in danger of a 50% reduction in reward.
There is an awful lot of math involved in the world of cryptocurrencies. The knowledge will always help you navigate market fluctuations and make money. And you will also get advice from development experts, like us, who will help you develop your own project and earn much more than on the stock exchange. Avivi experts have a good understanding of blockchain technology, so they are not bothered by halving and crazy informational noise and manipulations related to this topic. So let's work together and implement promising and successful ideas!
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