What Is Bitcoin Halving & How Does It Impacts Miners & Investor Psyche ?

In Short:

• The Bitcoin halving is an event where mining rewards are cut in half.
• This halving of rewards occurs every four years.
• This logic of cutting down the reward by half every 4 years comes pre-coded into Bitcoin’s blockchain protocol.

Bitcoin is rightly touted as a store of value and is seen as digital gold by many crypto investors & enthusiasts. One of the contributing factors that makes it a valuable asset to hold and preserve is its Reward halving cycle. This event makes it more scarce and increases the demand due to supply shock which creeps up.

Today we will look into this unique phenomenon and understand how it functions and why it enhances the Bitcoin value.

Before we delve deep into this question we need to understand what are the underlying technology which powers the bitcoin network. So we will cover the following concepts briefly

• Blockchain Network
• Bitcoin Mining & Proof-Of-Work

Bitcoin Blockchain Network Working :

Bitcoin’s blockchain network consists of hundreds and thousands of nodes(computers) that run the bitcoin client (mining ) software, these nodes stores all the transaction history across the network. These nodes are owned by common people or businesses and are distributed across the globe. The key role of these node owners is to approve or reject any transaction in the network.

How do they verify the transactions?

Every node who participates in the blockchain network as a miner runs a mathematical operation and performs a series of checks to validate the transaction for correctness. They check all the parameters in consideration are valid. For example, nonces of the concerned transaction should not be exceeding the length of the block which is pre-defined as a rule in the blockchain.

If anyone node successfully validates the correctness of the information, this information becomes a part of a new block and is broadcasted across the blockchain network of nodes. After everyone in the node approves that yes information exists, then only the transaction goes through successfully and a new block becomes a part of the legacy bitcoin blockchain.

Bitcoin Mining:

Every user who owns required computer hardware and has software installed to run a bitcoin client, and if he plugs his node in the blockchain network he is treated as a miner. These miners engage in the network to process the said transaction and validate it for correctness, this process is known as BitCoin mining.

Proof-Of-Work:

Now that we have understood the bitcoin mining concept, we also need to discuss the consensus mechanism which is employed in the blockchain network to validate the transaction and proof the same that it has been done.

• Proof of work (PoW) is a blockchain consensus mechanism that requires every node members of a network to put significant effort into solving an arbitrary mathematical question to prevent anybody from fooling the network
• This Proof of work is used majorly used in the crypto mining world, to validating transactions and mining new tokens(as a reward for the effort )

So now the bigger question here is why anyone would like to participate in the resource-intensive blockchain network putting his energy and money to validate the transaction and mine the block

The answer lies in the lucrative mining reward which is handed to the miners for authentic and successful block mining against the said transactions. Miners get back. But it is not as straightforward as it sounds.

The value of rewards depends upon the capacity and quality of mining hardware. The more power and hard work which gets into the mining process leads to higher rewards.

Bitcoin mining process to get new bitcoin out of the code is the digital equivalent to the physical work done to pull gold out of the earth.

Now that you are aware of all the technology in play, its time to revisit our BitCoin Halving concept and see how it works

How Does Bitcoin halving works?

As discussed earlier bitcoin halving occurs after every four years. Bitcoin’s most recent halving took place on May 11, 2020.

Source: https://medium.com/the-capital/what-is-bitcoin-halving-how-does-it-impacts-miners-investor-psyche-d7e7cd4a7ce?source=rss——-8—————–cryptocurrency