What is halving and why Bitcoin may reach $100 000 in 2021?

On August 7th this year there was a prize distribution in the Litecoin network. However, on May 25, 2020, there will be the most anticipated halving in recent times that will concern the king of all cryptocurrencies, namely Bitcoin. That is why we believe it is a good idea to remind you what halving is, where it came from, and what may be the consequences of it.

What is halving?

Before we understand what halving is, we should know how cryptocurrency works and how it is created. As you know, contrary to FIAT currencies, Bitcoin is not regulated by any central body. It means that Bitcoin is a decentralized network. Millions of computers, the so-called miners, are working around the world in order to register transactions and verify them in the blockchain.

To put it simply, the miners’ job is to add new blocks of information to the database, which is known as a public ledger. The network rewards them with cryptocurrency – bitcoins (BTC) for their efforts and to cover the expenses on mining.

Central banks are responsible for controlling the supply for particular FIAT currency. This is how they keep inflation at a “reasonable” level. It is due to the fact that there are no limitations as to how much money we can print. Bitcoin is something completely different. Here, there is a maximum limit of Bitcoin, and it is 21 million. In other words, once the blockchain reaches this size, there will be no more BTC to generate and to mine.

The consequences of halving

When a miner solves the algorithm, he receives an afore-mentioned reward. This reward is reduced by half with time as a result of the planned network system. LTC and BTC have got a limited supply for coins. It means that the reward for the miner will eventually reach zero.

The total LTC supply will be achieved when 84 million coins are distributed. It means that LTC halves the amount of distributed coins every 840 000 blocks. It will do that to the moment all coins are out there. On the other hand, Bitcoin offers only 21 million coins. In this case, the halving takes place every 210 000 mined blocks.

The first LTC halving took place on August 25, 2015. However, it was BTC that experienced the first prize distribution. It happened on November 28th, 2012. In both cases, the prize of 50 crypto coins was reduced to 25. The BTC experienced yet another halving on July 9th, 2016. This time the price dropped to 12.5 BTC. This is the amount that the Litecoin miners will receive after the second halving of LTC in August this year.

2020 will be the year when Bitcoin rewards will be reduced by half once again. This time the mining reward will be reduced to 6.25 bitcoins per completed block. For this reason, the annual Bitcoin inflation will be reduced to 1.8%, with annual gold inflation remaining at an average level of 3%. In other words, after the upcoming halving, Bitcoin will become rarer than gold itself.

At this moment miners are receiving 1800 bitcoins a day for completed blocks. However, after the 2020 halving, the number will be reduced to 900 bitcoins a day. The moment when the halving happens, there will be 18 375 000 bitcoins mined. This is approximately 85% of the total number of bitcoins.

When will this halving happen?

The halving in the Bitcoin network is expected to happen at the end of May 2020. However, we should bear in mind that the precise date of this event is not possible to estimate. It is all due to the fact that the calendar does not influence the halving, but the number of blocks that were mined. That is why this is just an approximate date. The speed of mining and completing blocks is dependent on the BTC mining difficulty. If; however, the level of difficulty changes for the worse, we may expect halving to take place several weeks later than due time.

How can halving influence our current market?

Since Bitcoin is only 10 years old, it is difficult to say about its history. However, to this moment we managed to identify several patterns. Based on them, we were able to draw specific conclusions. If we take a look at the chart of Bitcoin value, we will see that both halving events were the beginning of major increases in Bitcoins’ price.

What is more, we could notice an upward trend almost a year before the current halving. According to these charts, the recent months will be the starting point for another upward trend when the market will be approaching to the long-awaited BTC halving in 2020.

We should also remember that the halving in the Bitcoin network is useful not only in case of controlling inflation. This method also promotes permanent increases in the value of cryptocurrency. It happens by encouraging miners to remain in the network for a longer period of time. Although almost 83% of Bitcoin’s total supply was already mined, the last bitcoin is going to be mined in 2140.

Why would we keep mining if the prize is dropping?

As it was mentioned earlier on, halving also means that the miners are going to receive half of the prize. How does the halving influence the mining activity, considering this is the main reason for the entire network to operate?

The fact is that once halving is over, the miners will not turn their computers off. In fact, the computing power that is used to take care of the Bitcoin network remains the same.

That is why if the price for Bitcoin rises to the level that it compensates for the reduction in the prize, then it means that the situation is not going to change significantly for the miners.

Will the price of Bitcoin exceed $100 0000 by 2021 due to halving? Both halvings that Bitcoin had so far was used as a powerful price catalyst. What is more, thanks to them, it was the best time ever to invest in cryptocurrency.

Summary and conclusion

The first Bitcoin halving was the reason why its value jumped from $12 up to $140. Several weeks after the second halving we could notice a fantastic increase from $582 up to $20 000. In the meantime, it was possible to observe several ups and downs, and many rumors concerning this cryptocurrency that influenced its value. We should remember about one particular advice about investing during halving.

One of the most important advice you may receive to buy rumors and sell information. Speculators adore purchasing assets right before a major event. It concerns not only a cryptocurrency market but also traditional actions. Such a method could be one of the reasons why we could notice such a big increase in the case of two halving events in the Bitcoin network.