What will the Bitcoin halving event do for blockchain and digital commerce?

Bitcoin (BTC) traders potentially experienced a drop in revenue last week. On May 11, the number of new BTC bitcoins entering circulation dropped by half — from 12.5 to 6.25. And the expected revenue from each block reward operation was also cut in half, impacting profitability.

Other Bitcoin protocols had their halving in early April 2020. This recent halving could now impact the way that different Bitcoin protocols are used, as the total number of Bitcoins that successful miners can win (when they negotiate to process a block of transactions) has halved.

Why is this different?

Halving events have happened twice before — four and eight years ago — yet the mining rewards have steadily risen. What is so different this time?

Blockchain transactions are processed for a fee by computer nodes — also known as miners. New transactions are grouped into a block and broadcast to the network. Each block contains information about the previous block — in a SHA-256 hash — which links it to the previous block, forming the term blockchain.

The Proof of Work algorithm is a process where miners compete against each other in order to ‘win’ the chance to process a block, and earn a Bitcoin fee for processing the block.

Miners generate revenue through newly created bitcoin and transaction fees for processing each block.

Halving means that it is more difficult for miners to make money — as there are fewer blocks around for miners to process, for the same processing cost. In previous halving events, the price of BTC Bitcoin has increased after each event, and it is predicted to rise further.

Bitcoin has a hard limit of 21 million coins, which enter the market in a controlled way over time. This halving event has impacted some types of Bitcoin, as miners are selling existing Bitcoin to purchase newer mining hardware, and some hobbyist miners may have to shut their unprofitable operations.

High-margin miners could however temporarily operate at a loss for a short period of time, removing small hobbyist, and DIY miners from the network as their hardware might not be powerful enough to win resource-intensive, Proof of Work challenges.

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Source: What will the Bitcoin halving event do for blockchain and digital commerce? | ZDNet