Here we analyze what it uses to program a cut in half in some cryptocurrencies like Bitcoinespecially as a measure to ensure its long-term sustainability.
Many projects in the field of digital currencies have very attractive philosophical, technological and / or economic proposals that attract a larger number of followers every day who are interested in rapidly growing business opportunities.
Regardless of how revolutionary these suggestions may be, one of the aspects that every project must guarantee in the long term is its sustainability over the years. As a result, many teams set specific structural guidelines within the protocol to protect the value of the asset, especially if they have deflationary properties (negative inflation) and are clearly supported by user trust.
One of the most popular measures to ensure this is a procedure called Halving, Process that will take place within the network Bitcoin (BTC) In 17 days, given the commercial development in recent years, the analyst project will be of great importance for the future of the digital currency.
Due to the proximity of the Halve Bitcoin and the importance of this event for the digital currency. Below, we examine the relevance of this strategy as an alternative to ensure the sustainability of cryptocurrency projects.
What does a Halve and what is it for
Within the cryptocurrency ecosystem Halve is the name by which the cut in production of new assets is defined for the mining community. These are responsible for providing the computing power required to support the operation of a network. Blockchain, This is the only way to create new digital currency units that will reward them for the services provided to support the project.
This mechanism is first mentioned in the technical document (White paper) from Bitcoin, The project’s creator, Satoshi Nakamoto, establishes a number of guidelines to reward those who are interested in supporting network operations through a consensus algorithm called Proof-of-work (PoW). According to this principle, the devices that offer their processing power compete by performing calculations at high speed to find exactly the code with which the block with the compiled transactions can be closed, and thus earn an additional amount of commissions the associated commissions new BTC generated.
According to Nakamoto he Halve in the case of cryptocurrencies like Bitcoin would happen every time the network mined a total of 210,000 blocks. While the Blockchain the digital currency generates a new block every 10 minutes, estimates that the network would finish mining the 21 million BTC Originally planned for 2140, with more than 98% of assets already in circulation in 2030.
Cryptocurrencies with deflationary properties
In contrast to the money spent by the central banks Bitcoin and many other cryptocurrencies they have deflationary properties, Therefore, they are programmed to process a limited number of tokens that are produced through mining activities.
The focus is on deflationary characteristics so that assets gain value as the number of coins issued approaches the initial limit. This would avoid indiscriminately making new copies and prevent the circulating tokens from losing their purchasing power.
Bitcoin and its “alternative versions”
since BTC It was the first digital currency to hit the market. Many other digital assets in this ecosystem were originally born as “forks” or alternative versions, precisely because they are based on the code of Bitcoin and they implement some operational changes based on the vision they have for this cryptocurrency.
This is the case with Litecoin (LTC), Bitcoin Cash (BCH), Bitcoin SV (BSV) y ZCash (ZEC), Digital currencies that, despite managing different operational characteristics, have in common that their networks operate under the same consensus algorithm (PoW)They planned miner cutbacks after processing a certain number of blocks, and they will have a limited number of programmed assets after mining the last batch of tokens.
Indeed This is not the case for other currencies, especially if it is Ether (ETH), since this was not designed to operate as digital money, but also for the fact that the network implements other features that, thanks to smart contracts, open space for other types of applications. Currently new ETH There is no upper limit, but this condition could change with that implemented in version 2.0 of the project with the implementation of the consensus algorithm. Proof-of-stake (PoS)
Lower supply / greater demand: logic of Halve for cryptocurrencies
Let’s take the case of Bitcoin, So far, the digital currency network has seen two Halve As for the story:
- The first took place on November 28, 2012. The reward range increased from 50 to 25 BTC generated from each block at 10 minute intervals. The price of Bitcoin in six months it rose from $ 12.35 to $ 127.
- The next one was on July 9, 2016 and the reward cut went from 25 to 12.5 BTC is created after each processed block. The value of the digital currency rose from $ 650 to $ 758 in six months.
- The next Halve will take place on May 13 of this year, with which the reward range will increase from 12.5 to 6.25 BTC is generated every 10 minutes. The price is currently above USD 7,500 per unit, but analysts predict a possible significant increase in the coming months.
Halve and hashrate
Although after everyone Halve there was a significant decrease in the volume of Hashrate (Computing power), Analysts point out that one of the issues that drove up the price of the digital currency was related to the decrease in supply and the increase in demand. which is of greater commercial interest in Bitcoin further promoting its introduction as a means of payment, as a mechanism for storing value and as a method of rapidly multiplying invested capital.
Despite the fall of Hashrate in the short term, precisely because these operations cannot be performed by anyone with less powerful devices after everyone To have In the medium term, the level rose again due to the introduction of new types of special hardware. Such devices optimize power consumption and exponentially increase the number of calculations to be performed per second. This is much more profitable for the operator than for previous generations.
Cases of Litecoin, Bitcoin Cash and Bitcoin SV
Although the story was favorable in the event Bitcoin, Users of Litecoin, Bitcoin Cash and Bitcoin SV do not see any good results of the Halve that happened in their respective networks.
In case of Litecoin, be Halve It took place in early August 2019 and reduced the reward range to LTC 12.5 generated from each block processed. Despite the fact that more than eight months have passed since this event, the price of the digital currency is currently almost 50% lower than the price registered at that time.
In relation to Bitcoin cash y Bitcoin SV, Both digital currencies saw their respective ones Halve just a few weeks ago. Although the price of these cryptocurrencies is currently lower than the price ascertained at the time of the cut, the analysts mainly highlight two aspects that need to be considered:
- There is still not enough time to establish a clear trend that directly affects the Halving, They therefore recommend waiting at least six months to submit more specific analyzes.
- These are digital currencies with less commercial development than Bitcoin, which deal with various suggestions about its predecessor. Here they recommend waiting much longer to see how these projects develop and whether they manage to gain greater traction among enthusiasts and investors.
Atypical market conditions
On the other hand, analysts also highlight that the main markets of both the traditional ecosystem and the crypto world You are currently faced with conditions that have never been seen before due to the pandemic situation COVID-19, This has affected the local economy and irregular effects on the main price indices.
As for the crypto ecosystem in the current situation, the markets experienced a significant collapse in mid-March this year after having seen very good commercial development in recent months. However, coins like Bitcoin y ether They are beginning to recover positively and are approaching the level before their fall, while the oil and industrial markets continue to suffer from the aftermath of the crisis COVID-19 in the different countries where it had a high incidence.
Good reputation is the key to a Halve
Judging by what was seen in the case of Bitcoin Everyone seems to be the pioneer of the digital currency ecosystem Halve It advocated the development of the digital currency and promoted price increases, mining activities and the introduction of new users. This has been borne out by history when looking at the growth of the cryptocurrency market, which at the time of publication had a capitalization of $ 138,906 million.
Although other cryptocurrencies are derived from Bitcoin They don’t seem to be chasing each other with the same luck Halving, Analysts agree that the fact That these networks are considering a gradual reduction in the mining community reward range is a good indicator to trust the project, but unfortunately it is not enough.
It is therefore very powerful that a project has an active community that supports the digital currency technologically and commercially. It is also important that the digital currency in question operates in accordance with the principles for which it was developed and works transparently, without room for events that would jeopardize its proper functioning.
Finally, it should not be forgotten that certain cryptocurrencies regardless of how revolutionary and deflationary they are Halving These programs do not work far from the traditional financial ecosystem, so their development may be affected by the pandemic situation COVID-19 This is noticeable in the most important industrial markets worldwide.
Everything you need to know about halving Bitcoin is scheduled for May 13, 2020
Bitcoin Cash’s halving drift is dropping slightly in the price of the digital currency and in HASH levels
The Bitcoin SV network has already been halved and has led to a fall in prices
Bitcoin isn’t the only one: a look at halving other popular cryptocurrencies
Articles by Angel Di Matteo / DailyBitcoin
picture of Unsplash