The Halving, it has been discussed, planned for, and in many cases celebrated for about a year, the point where the output of mining is halved from 25 Bitcoins to 12.5 Bitcoins signifies not just a reduction in Bitcoin supply, but a landmark in the what remains brief life of this potentially world changing technology. However, while the halving parties have been and gone, and the hangovers now a bad memory, what does the halving really mean for the digital currency industry?
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The countdown to the bitcoin halving, where the subsidy the network compensates miners with falls from 25 BTC to 12.5 BTC, has been ongoing for around a year now. This means that the rate Bitcoins are produces has essentially halved, and is only the second of such events in Bitcoin’s history. With the event finally occurring what does this really mean for the future of Bitcoin itself and the wider cryptocurrency industry?
When finally, block 420,000 was mined in China on July 9, the rate dropped, marking the fact that we are now in a situation where close to 80% of all bitcoins that can ever exist are in circulation, and the inflation rate, that is the amount the Bitcoin market increases each year, dropped to 4.17%. The next halving is predicted to be in 2020, and the point that 95% of all Bitcoins will have been mined will be reached in around 8 years. But what does this all mean for users, and the industry?
A decreasing supply with static demand should see an increase in price of Bitcoin, however, it is very arguable whether we are in a period of static demand. Indeed, the turmoil in the fiat monetary system highlighted by the UK referendum that saw panic right across global financial systems, suggests that we could actually be heading into a period of increased demand, the fallout from the UK’s decision to leave the EU and the issues of uncertainty that the upcoming U.S. elections represent suggest that fiat systems will remain volatile. In those circumstances, such as Greece a couple of years ago, we have seen consistent increase in demand for digital currency. This could see a significant increase in Bitcoin price over the coming months, as demand increases but supply falls.
For the industry itself, miners face the prospect of income reduction, but this could be partially offset somewhat by potential price increases, and how this plays out will in many ways test the viability of mining as a long term endeavor for the industry itself.