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Bitcoin Halving

On the 11th of May, 2020, a rare event occurred in the cryptocurrency space. Bitcoin halving, which occurs roughly after every 4 years. After this, rewards for the Bitcoin mining reduced to 6.25 BTC, Half from the earlier 12.5 BTC. Bitcoin, a great idea from an unknown person or group Satoshi Nakamoto is quite similar to the asset class gold. Gold is mined from the earth while Bitcoin is mined through computer algorithms. Similar to the very low supply of the new gold, which is due to limited reserve on earth, the bitcoin is also rare as the only total of 21 million can be brought into circulation. Around 18 million are in circulation right now. A new bitcoin is created as a reward when a miner creates a new unique cryptographic hash (or we can say key) for the block of transaction. (Block contains a ledger of bitcoin transaction and has a limited storage capacity). To create a new 64 digit hexadecimal hash, miners compete with each other through power of computers to be the first one to generate the hash. Prior to 11th May, this reward was 12.5 BTC which means new 12.5 bitcoins are mined each time a block is created. After 210,000 blocks created this reward gets halved and right now it is 6.25 BTC. Roughly after 10 mins, a new block is created and for 210,000 blocks it takes around 4 years. Halving is done to prevent inflation to decrease the purchasing power of the Bitcoin, making bitcoin a deflationary asset. Initially, 1800 bitcoins are minted daily accounting for 3.8% inflation in the Bitcoin and after halving it is reduced to 1.8% with 900 Bitcoins minted daily. 1.8% inflation is quite less than the inflation rate of many major markets. Halving is a very important event for Bitcoin currency. The previous two halving events have been proven to bring rally in the price of bitcoin. In 2013 the Bitcoin price touched $1100 dollar after the halving event of 2012 and in 2017 it was just shy of $20,000 after the halving event of 2016. Though many say these rallies were contributed by other factors also. I personally don't like Bitcoin space to keep it as an asset but many fund managers are keeping it in portfolios for hedging purposes from inflation. What are your thoughts about bitcoin? Is it a future currency or just another hyped technology?


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