Bitcoin halving – what does this mean?

The cryptocurrency known as Bitcoin has just gone through a majorly hyped up turn of events which has seen the rate of new coins being created dramatically drop. It can be difficult for people outside of the online currency world to wrap their head around, but this change will eventually limit the number of individual Bitcoin’s to 21 million in around two decades’ time.

The halving took place on the 11th May 2020, and basically means that the thing this currency relies on, called ‘miners’ will start to receive half of the reward they did before for their work, and this halving will continue to take place every four years from now.

 ‘Miners’ run software that races to solve complex maths puzzles in return for rewards in the form of Bitcoin. Monday’s halving event now means that the reward for unlocking a ‘block’ has gone from 12.5 to 6.25 new coins. This actually the third halving event since Bitcoins beginnings in 2009, and the next event of this nature is set to take place in 2024.

The BBC report, “Bitcoin’s code also means that rewards to miners will continue to halve every 210,000 blocks until they reach zero in around two decades’ time, limiting the total number of Bitcoins that will ever exist to 21 million. This is because – unlike currencies such as the dollar, pound or euro – digital currencies have no central banks to regulate their supply”.

Can cryptocurrency become relevant again?

In this strange period of time we’re all living in, trapped indoors, without the contact of other people, stuck with our own thoughts for at least three weeks, all thanks to Covid-19, you may catch yourself thinking about many things. One of which are online currencies, if you’re interested in the business world of cryptocurrency.

A few years ago Bitcoin and the like had many of us excited for the future and how these, then new, types of virtual currency were going to change the way we bought items, earned money, and purchased things completely. That didn’t pan out as planned in the end and turned out to be more of a flashing trend than anything else. Could they make a comeback? Probably not, but why did they fail and fade away so quickly? Let’s take a deeper look into the reasons behind their seeming disappearance.

Coin Rivet says that while it had some successes in the past, things haven’t really gone to plan over the past few years. They write, “At the same time, however, the crypto market has witnessed some monumental failures. According to Deadcoins.com, there are around 1,000 “deceased” coins and another 700 coins that have fallen victim to scams. Many coins were launched to great fanfare during the Bitcoin bubble but simply failed to live up to their hype. The market has also witnessed high-profile thefts, hacks, scams, and regulatory crackdowns, which have severely tarnished its reputation and credibility”.

A flash in the pan

In 2017 the cryptocurrency market spiked, with the rise of Bitcoin playing a huge role in the albeit short, but successful period. People were hooked when the virtual currency was introduced and were discovering ways that seemed to capitalise on the market, displaying a steady profit increase for even the most casual of customers.

Investopedia write, “In the Fall of 2017, the price Bitcoin began to rise and rise and rise. In October of that year it broke through $5,000, and in November doubled again to $10,000. Then, in December, 2017 the price of one bitcoin reached nearly $20,000. Several commentators and critics called this a price bubble, many making comparisons to the Dutch Tulipmania of the 17th century. Indeed, just a few weeks later, the price Bitcoin fell rapidly, crashing all the way down below $7,000 by April 2018 and below $3,500 by November 2018”.

The early adopters of Bitcoin found success, but this is only because they bought a new product before many people had much knowledge of, that then went on to become popular for a brief spec of time. Lightning doesn’t strike twice when it comes to this type of marketplace, and therefore the online currency world was one for the early birds to feast upon and take advantage of latecomers to that particular party. Investing a decent amount of cash into the cryptocurrency market now would likely be foolish without an insane amount of luck in terms of both investment and timing.

This is also the reasoning behind Bitcoin being the only real contender in the market to put up a decent fight in its early stages. Virtual currency has now been tried and tested and won’t likely be touched again with the same magnitude and pushing for quite some time.

The issues with virtual money 

There are many issues with virtual currencies and those said problems have often lead to the undoing of the prospect itself. New arrivals to the cryptocurrency industry often aren’t inventive enough or take a different enough approach to make customers consider investing or even pondering over the concept. If you can’t attract new customers your business model will obviously fail. Nobody wants Bitcoin cash if it doesn’t offer them anything for example.

This is why cryptocurrency has become heavily reliant on peer to peer communication and word of mouth recommendations to attract newbies to the cause, which is ironic as it’s a virtual system.

This goes along with the problem that cryptocurrency is not a commodity, therefore has trouble advertising or presenting itself as something the public needs. Forbes go into this point with extended amounts of detail by saying, “A commodity is usually something that is consumed, leading to demand for more. Oil and wheat are examples; once a stock of those is consumed, another must be supplied. Cryptocurrency is not a commodity. There is no demand for cryptocurrency in the consumption sense, and an individual unit of cryptocurrency is not destroyed by a transaction but can be reused over and over such that most demand can be met by existing stocks”.

The unpredictability of this kind of virtual money is another negative, you can lose profit quickly after your initial investment and there’s nothing you can really do to effect the market that will work out positively for you. This high level on uncertainty is clearly enough to put off many potential investors, and rightfully so as currencies such as Bitcoin are nothing more than acts of gambling when you consider making your first investment into this kind of business market.

Econlib state that, “crypto-assets price can float abruptly. Investors may lose (but also gain) fortunes. In theory, stablecoins minimise this risk; Facebook’s Libra, in particular, would dramatically minimize volatility if it should ever come to exist. Third, market manipulation is always a possibility, and there is no guarantee that the crypto-assets brokers themselves will not be involved. So there are risks – and yet, what in life doesn’t? When we factor in the potential for gains in asymmetric trades such as Bitcoins, it all sounds like a reasonable bet”. 

Don’t expect to see it take a prominent role in the future

In the decades to come their will most likely be many more virtual money businesses and contributors popping up all around the world to try and make a change in the market for the betterment of the industry, but it won’t work out. This is because they’ll face the same problems as they’re facing right now. It isn’t something people need; therefore, they won’t feel like they have to buy into it. It’s also not something that will replace actual money, in terms of cash or credit. It’d be impossible for enough people to jump on board that would be the equivalent to a big currency shift, and so it’ll never truly happen.

Tread carefully when taking on the cryptocurrency industry and do your best to avoid money losing schemes. The market will also face drastic drops and you’ll never have any true confirmation of what will happen with your investments. Early adopters of Bitcoin have found profitable success stories, but that ship has sailed well away. Avoid falling into the traps at all costs.

Does the halving of Bitcoin entice you further, or simply put you off of making any more steps towards the cryptocurrency market? It is a confusing time indeed for the world of online and virtual currencies, but if you already have a hand in the market, you’ll need to make sure that you’re keeping tabs on all the ongoing changes as they’re happening.

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