Halving – What is it, definition and concept | 2022

The halving is a process that periodically reduces by half the rewards for the creation of blocks in the cryptocurrency market, with the aim of stopping the issuance.

The first to implement this system was Bitcoin (BTC), when its founders (under the pseudonym Satoshi Nakamoto) used it so that the issue would not skyrocket in the future. Over time, other cryptocurrencies used it for the same purpose.

Mind you, this definition of “halving” doesn’t just apply to virtual currencies. For example, in greenhouse gases, it is a widely used concept when setting a future goal to reduce them.

Halving need

We are faced with a method that seeks to stop the creation of blocks. This has its raison d’être in that, if these are to skyrocket, the issuance of the cryptocurrencies they support also increases. Normally, a finite future emission is established.

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Keep in mind that the advantage of decentralization in this type of market is also that it allows miners to create blocks in order to get rewards. Thus, by reducing these, the creation of blocks decreases.

In the case of Bitcoin, for example, a finite number of 21 million coins was raised. For this reason, they established this process automatically every four years. As of March 2022, 88% of the total planned blocks had been mined.

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Consequences for the user and the miner of the halving

Let’s see some of the consequences of performing a halving in cryptocurrencies:

  • In the first place, if we reduce the emission by half and the demand does not vary, the price increases and, therefore, it becomes more attractive to invest.
  • This situation of price increase occurs only in a first phase, then it tends to go down when investors begin to sell.
  • As it is periodic, it seeks to prevent those mentioned declines from remaining in the market for a long time.

The Bitcoin Blockchain

We are going to finish with the example of Bitcoin that appeared on the market in 2009. The reduction system of this cryptocurrency meant that every four years the rewards would drop by half. In this way, in 2013 it went from 50 BTC to 25 BTC, at the beginning of 2022, it was 6.25 BTC.

If the periodic halving had not been implemented, a forecast of more than 2.5 million BTC per year could have been reached. This means that, with a maximum emission of 21 million, in about eight years all possible emission would have been made.

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