The biggest event in Crypto-land. The Bitcoin halving.

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Tech and Anything in between.

What is it and why is it trending on Twitter and Google search?

Before I proceed, yeah, it means cutting into halves. Thanks for asking.

We’ve covered Bitcoin the currency, the protocol, and the mechanism (refer Bitcoin and After Bitcoin) but the question remains “Yeah they are digital/computer-based coins but where do Bitcoins come from?”

The date is ‘The Times 3 January 2009 Chancellor on brink of second bailout for banks’. (The text refers to a headline in The Times published on 3 January 2009). A text that was encoded on the first-ever transaction block on the Bitcoin ledger by the creator Satoshi Nakamoto signifying the beginning of a new financial order. No clear explanation has ever been given on the choice of words in that text but personally I believe, for a person who was tired of banks and bailing out by the governments, it definitely had something to do with that. Also, it was right after a global recession and the world economy was recovering – cause; the housing crisis and banks.

The building blocks of The Bitcoin Blockchain.

  1. The coins – there was a need for an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party removing the need for banks and payment processors.
  2. Transactions – Satoshi described Bitcoin as “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
  3. Timestamp – Timestamping data is an extremely useful process for checking the integrity of data. This means that if the data is published, you can easily confirm that the data has not been changed.
  4. Proof-of-Work – {{Brace yourself 😉}} Bitcoin is not owned or controlled by anyone (can not be shut down either), Its a fully-fledged financial software that’s in itself; a currency, a central bank, a bank, and a government with a constitution and a set of rules. To earn Bitcoin, workers in the form of computers have to employ resource-intensive processes called mining. This is the process of producing new Bitcoin. The process involves collecting all the transactions within a 10min range, checking the user’s account balance, batching them together, and broadcasting the batch to a network of thousands of computers. The network then will confirm and authorize all the transactions at once if all the conditions are met. Once done, the successful miner is rewarded newly minted coins by the network for the work done. And that is how new Bitcoin enters circulation. This new block of transactions is then chained to previous blocks forming a chain of blocks of bundled transitions hence Blockchain.
  5. Network – Thousands of computers that facilitate transactions, timestamping, governing, and securing this new financial system. They all have to be in agreement for any transaction to proceed thus minimal to zero chances of fraud.
  6. Incentive – i) the worker has worked to batch transactions; ii) the network has authorized and timestamp this batch as the true copy. It’s from this event that an incentive is drawn in the form of new Bitcoins. The process of mining is not only for generating and confirming new transaction but it’s very important as it secures the next and 11yrs later, this network worth over Kes 11 trillion hasn’t been hacked.
Read Also  The who and who that came after Bitcoin.

Umeongea sana msee, so what’s this Halving? Why is it trending? And of course, why is everyone tensed and excited at the same time? For the record, this is Bitcoin third halving and if history repeats itself then the Price will probably double, triple or …..

Read Also  The who and who that came after Bitcoin.

Halving comes into play on the incentivization part of Bitcoin. Every 210,000 blocks mined, or about every four years, the reward given to Bitcoin miners for processing transactions is cut in half. This cuts in half the rate at which new Bitcoin is released into circulation. This is Bitcoin’s way of using a synthetic form of inflation that halves every four years until all Bitcoin is released and is In circulation. This system will continue until around 2140.

Read Also  The who and who that came after Bitcoin.

The halving is significant because it marks another step in Bitcoin’s dwindling finite supply. There are only 21,000,000 Bitcoins in existence. At the time of writing, there are 18,361,438 Bitcoins already in circulation, leaving just 2,638,562 left to be released via mining rewards.

In 2009, the reward for each block in the chain mined was 50 Bitcoins. After the first halving it was 25, then 12.5, and come May 12th, 2020 It will be 6.25 Bitcoins per block. To put this in another context, imagine if the amount of gold mined out of the earth was cut In half every four years. If gold’s value is based on its scarcity, then a “halving” of gold output every four years would theoretically drive its price higher. These halvings reduce the rate at which new coins are created and thus lower the available supply. This can cause some implications for investors as other assets with low supply, like gold, can have high demand and push prices higher.

Unlike government-issued money which is mostly backed by faith, Bitcoin is backed by maths – the law of demand and supply. With growing adoption, a cut in a supply has a resulting excess demand which in turn affects the price per coins. This effect will and has been proven to drive up prices, doubling, tripling, and so on.

The theory of the halving and the chain reaction that it sets off works something like this:

The reward is halved → half the inflation → lower available supply → higher demand → higher price → miners incentive still remains, regardless of smaller rewards, as the value of Bitcoin is increased In the process.

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