Halving cryptocurrencies - what is it and why is it needed

In order to understand the concept of halving, it is first worth saying that inflation is peculiar not only to physical money, but also to digital assets. In other words, they can also depreciate if their supply begins to exceed demand. In order to prevent this from happening, halving is necessary (English halving - halving).

It is a process in which the rate of generating new units of cryptocurrency decreases, and after that the amount of remuneration of miners for each block mined also decreases.

Mining is especially relevant for cryptocurrencies, the issue of which is limited - for example, for bitcoin. Its maximum possible amount is 21 million coins, and presumably it will be fully mined by 2140. It's no secret that the mining process is constantly becoming more complicated, but the development of capacities and technologies also does not stand still. Therefore, in order to make the process of new volumes of bitcoin entering the market smoother and more progressive, its creator Satoshi Nakamoto provided for halving in the network algorithm once every four years, every 210 thousand blocks. Just compare: in the first years of bitcoin's existence, miners received 50 coins for each mined block, after halving 2012 - 25 coins, respectively, in 2016 - 12.5 coins, in 2020 - 6.25 coins, and in the next 2024 the reward will be only 3,125 coins.

If we compare the initial 50 bitcoins per block and the expected 3,125, then the situation looks quite deplorable. But do not forget that the price of flagship cryptocurrencies is constantly growing, and halving is one of the locomotives of this growth. This is because with each halving, the cryptocurrency becomes more difficult to mine, and therefore more rare and valuable. Demand begins to exceed supply, which leads to an increase in price - this is a general economic law. Knowing this, many market participants start buying coins in anticipation of an increase in their value, and as you know, purchases also move the price up, and, in fact, we get a double effect. It is easy to see this on the example of the course of the same bitcoin - after the first halving in 2012, its rate soared from $ 12 to $ 1000. A similar situation was observed after the second halving in 2016 (the price increased from $670 to $20,000), and after the third in 2020 (an increase from $8,700 to $63,500).

But here it is important to note that the price does not necessarily have to be finally fixed at the achieved high level - after the first effect and the excitement subside, its rollbacks are often observed. This must be kept in mind if you want to use halving for speculative earnings. And one more note - the growth rate does not occur immediately after halving. That is, it is not a lightning-fast, but a progressive process. For example, bitcoin starts to rise in price about six months before halving and reaches its peak in 1-1.5 years. And during this time, as you know, anything can happen, because the price never tends upwards at an angle of 45 degrees.

And the last question remains - is halving characteristic of all coins? As a rule, it is used by market headliners working on the Proof-of-Work consensus algorithm. PoW is a special principle of protection against abuse, which ensures the addition of new blocks to the blockchain, confirmation of transactions and verification of a single version of the registry in all its copies. For example, in addition to bitcoin, halving is used in Litecoin, Bitcoin Cash and Ethereum Classic.

Summing up, we can say that halving is an important process that helps to ensure the reliable functioning of the crypto market not only here and now, but also in the future. And certainly giving an opportunity to earn money, if you approach it wisely and with the necessary caution.

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