In case you missed it, Bitcoin just underwent a “halving,” the third in the cryptocurrency’s history, on March 11.
If you’re a little unsure about what exactly a Bitcoin halving means, don’t feel bad. Cryptocurrencies have their own unique vocabulary that is all but nonsensical to the uninitiated. Today, we’re going to explain what a halving is and what it means to investors in the space.
First, a little background. Bitcoin runs on a blockchain, which is an open, digital ledger that records every transaction made in the history of the cryptocurrency. Because the ledger is distributed across every computer on the network, it’s extremely difficult to hack. There is no central database that can be tampered with. All transactions are recorded on every computer in the network and open for all to see.
To incentivize people to support the blockchain – dedicating their computer resources to maintaining the ledger – the system allows those that participate to “mine” new Bitcoin. The algorithm that governs the cryptocurrency rewards freshly mined Bitcoin to miners for volunteering their computers for transaction processing.
Well, “halving” is where the reward for mining gets chopped in half. The same amount of number crunching generates half the number of new Bitcoins.
What Is the Point of Bitcoin’s Halving?
The beauty of Bitcoin is that it is finite. In an age in which the Federal Reserve is running the proverbial printing presses overtime, creating asset bubbles and stoking fears of inflation, Bitcoin cannot be printed at will. Its supply is regulated by the mining process, and halving is an important part of that process.
By chopping the mining reward in half, the algorithm ensures that the supply of Bitcoin doesn’t grow too quickly, creating inflation.
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