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Source-This post on Bitcoin halving is based on the article “What is Bitcoin Halving and what it means to the crypto community? published in “The Hindu” on 24th February 2024.
Why in the News?
Crypto traders and Bitcoin miners are eagerly awaiting their quadrennial event known as Bitcoin halving, which is predicted to occur in April 2024.
What is Bitcoin halving?
1. About- Bitcoin halving means 50% reduction in the reward paid to Bitcoin miners who process cryptocurrency transactions for inclusion in the public digital ledger, known as the blockchain.
2. Quadrennial event– This event programmed into the Bitcoin algorithm and it occurs approximately every four years.
How does it work?
1. A decentralized network of miners, validates and confirms all Bitcoin transactions through a process called mining on the blockchain network.
2. Miners solve complex math problems with powerful computers to add transactions to the Bitcoin blockchain as part of its proof-of-work mechanism. As a result, they receive a reward of 6.25 BTC.
3. Given the current Bitcoin price, 6.25 BTC amounts to approximately $193,750, serving as a considerable motivation for miners to maintain the smooth addition of Bitcoin transaction blocks.
4. Bitcoin transactions consume a lot of electricity and create large carbon footprints because of the intense computational activity involved, even though no physical mining occurs.
| Did you know? 1. Bitcoin began in 2009 with a block reward of 50 bitcoins. 2. In 2012, the first halving reduced it to 25 bitcoins, then to 12.5 bitcoins in 2016, and to 6.25 bitcoins in 2020. 3. The next halving in 2024 will cut the reward to 3.125 bitcoins per block. |
What is its significance?
1. Limited Supply– The maximum supply of Bitcoin is 21 million coins, and halvings are essential to prevent this limit from being reached too quickly. By decreasing the pace of new Bitcoin creation, Bitcoin reflects the extraction pattern of a finite resource like gold- becoming harder.
2. Lowered inflation rate– Halving events slow down new Bitcoin creation thereby reducing inflation in the Bitcoin system. This differs from fiat currencies, where central banks can print money freely, risking high inflation.
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