Posted by Xoken.org – THE bitcoin MARKET implemented a “halving” of the reward for operating cryptocurrencies, a highly anticipated move designed to limit production and increase the value of the digital money.
“The 4th Bitcoin addition is complete!,”announced cryptocurrency exchange Binance on X, the former Twitter.
“The countdown has been reset — see you in 2028.”
Bitcoins are created as rewards when computers solve complex puzzles to determine which miner wins the right to validate a block — and receive a reward in the form of bitcoins.
However, since its launch in 2009, the reward has been cut in half every 210,000 blocks in a process called halving.
With one block validated approximately every ten minutes, a significant event in the industry occurs almost once every four years.
The reward, which has been set since May 2020 at 6.25 bitcoins per new block, has now fallen to 3,125 bitcoins
Bitcoin was created in 2008 by a person or group writing under the pseudonym Satoshi Nakamoto.
The halving process slows the rate of creation of new bitcoins, thereby limiting supply.
Prize amounts have been trimmed over time, through halvings, to enforce Nakamoto’s overall global limit of 21 million bitcoins.
However, this ceiling is expected to be reached by 2040.
Supply
“The main purpose of the halving is to control the supply of bitcoin,” said City Index analyst Matthew Weller in a research note ahead of the event.
“With the rate of new bitcoin creation slowing, halving helps maintain scarcity and potentially increases the value of the cryptocurrency, provided demand remains stable or increases,” he added.
Bitcoin prices have been on a record-breaking path on the prospect of reduced supply, as well as major strides towards greater trading accessibility.
Bitcoin has surged by 50% in value since the start of the year, peaking last month at a record US$73,797. Prices have fallen in recent days.
“This is the first time that bitcoin has beaten its historical record before the halving even happened,” said eToro analyst Simon Peters, noting that there had been a drawdown in recent days.
Commercial bitcoin mining companies operate thousands of computers in large hangars or warehouses, consuming large amounts of electricity at enormous costs.
Hence, halving is a big safety test for these companies as it reduces their main source of income.
Reduced margins
In the face of the prospect of diminishing margins, bitcoin players have invested heavily in new, cutting-edge computers, along with efficiency efforts that in particular seek to cut energy costs.
Additionally, some mining companies will have to “shut down some of their machines to cut costs, meaning fewer bitcoins are created,” said Manuel Valente, founder of cryptoasset investment group Coinhouse.
“And if the price of bitcoin falls, their profitability will be reduced” further, he told AFP.
The halving therefore exposes the weakest bitcoin mining companies, and could potentially trigger a new wave of sector consolidation in the fight for survival, commentators say.
At around 0030 GMT, after the halving took place, the price of bitcoin rose 0.7% to US$63,467.46. (AFP/Z-3)