The famous cryptocurrency, Bitcoin, has gained almost 200% since the beginning of this year. There are many theories about why this rise and one of these theories is gaining traction.
Halvening is the event in which the rewards for so-called mining workers are reduced by half. To understand what this means, it is important to know how the blockchain works.
Miners with powerful computers are competing to solve complex math problems to validate the validity of the bitcoin transactions. Everyone who wins this race gets a reward in Bitcoin.
Currently, the number of miners is rewarded in stands at 12.5. Rewards are reduced by half every few years to keep a lid on inflation. By May 2020 experts say, the reward per worker will be reduced in half again to 6.25 new Bitcoins.
Bitcoin’s current inflation rate is about 3.76%. “In May next year it is set to be reduced to 1.8%.” , according to market analists.
This process takes place almost every four years. This is because of a rule in the Bitcoin software, created by Satoshi Nakamoto, the unknown person or people who created Bitcoin. One of the main advantages of Bitcoin is the ability to predict about the new supply being issued.
Bitquin is often referred to as “digital gold” due to its supply dynamics and liquidity. Experts say the value of the cryptocurrency is supported by the scarcity of the total number of existing Bitcoins. Bitcoin has a cap at 21 million coins being minted. About 80% of this figure has already been extracted, and the hard cap will not be reached for another 120 years.
How can prices be affected by this?
Traders see the possibility of growth with such an event, as it eventually leads to a decline in supply, leading to a rise in the price of digital asset. The tightening of supply is pushing the price higher and the anticipation of a drop in liquidity in the market. The digital currency has recently reached its highest level in 15 months.
The could be an uncertain event for the Bitcoin miners, considering there would be “clean out” of the less competitive mining equipment “on which the price is correlated. ” A shift in demand for newly mined Bitcoin, and the lack of coming onto the market can be expected to rise the price of Bitcoin.
As we mentioned earlier, there are a number of other theories about why the price of this year’s Betcairn has risen, along the way of investors using it as a hedge in the midst of the US-China trade war, along with Facebook creating its own encryption currency.
Now Bitcoin has passed the price of $11,000, and it has earned more love by investors this year. But the picture was less rosy last year, with the cryptocurrency dropping more than 70%. This came on the back of a record high of close to $20,000 in late 2017.