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The daily life of the Bitcoin community is as exciting as an American blockbuster.
For example, in May this year, Craig Wright publicly admitted that he was Satoshi Nakamoto, the inventor of Bitcoin. Within a few days, he said he would give up proving his identity. The situation changed so quickly like a tornado.
There are many such incidents. And the price of Bitcoin is also rising.
I don’t know how to explain why Bitcoin is so popular. Maybe it’s because Bitcoin exists independently of any economy. Although its price is volatile, it still attracts many investors.
Now, another event that could shake the entire Bitcoin system is about to surface: the "block reward halving." The halving is initially scheduled for July 9, which is enough to affect the price, stability and future development of Bitcoin.
What exactly is the halving?
First, let me explain how Bitcoin works. Bitcoin is a digital currency that provides peer-to-peer financial transactions, eliminating the middleman in the traditional model. Because of its simple and transparent operation, this technology is often used to reduce fraud.
The key to reducing fraud in Bitcoin is mining. The Bitcoin network is like a thick ledger, with pages of content called blocks. Each block has a capacity of 1MB. The role of miners is to verify the transactions in the blocks: miners solve a math problem by taking the data of each transaction. This math problem is called a hash. The hash is a short, unique string of numbers that records the transaction information of each block. After verification, the current block will contain the hash value of the previous block, which explains the permanent and unchangeable nature of Bitcoin transaction records (changing a hash requires changing the hash in the ledgers of all miners in the network). It is worth noting that as more and more computing power is added to the Bitcoin network, the difficulty will increase.
Of course, miners do not do this for fun. Every time a miner completes a block, he or she will receive a certain amount of Bitcoin as a block reward. The current block reward is 25 BTC/block, which is equivalent to about 17,000 US dollars (today's Bitcoin transaction price is about 680 US dollars/BTC). Only when a block is successfully mined can new Bitcoins be generated.
$17,000! That's a lot of money! Doesn't it make you feel classy?
Miners do earn a lot of money. According to Motherboard, a news website, the Chinese mining industry earns up to $1.5 million in block rewards a month. ARK Invest, an investment management company that manages innovative technologies and Bitcoin financial products, estimates that 40% of this comes from profits alone. But mining is very expensive, including computing power and electricity. For the mining industry, improving efficiency is important, so many miners are looking for better mining chips or upgrading equipment to reduce equipment heating.
As long as there is money to be made in mining, miners will not give up. But as things stand, mining is about to become a chore.
What exactly is changing?
Remember what I said about the block reward? In about a week, the block reward will be halved to 12.5 BTC/block.
Why?
One of the reasons why Bitcoin is valuable is that it has a limited supply. There are only 21 million Bitcoins in existence. This makes Bitcoin as valuable as gold. When the Bitcoin creator created the system, he expected that if the number of miners increased dramatically, all 21 million Bitcoins would be mined soon. There are currently nearly 16 million Bitcoins in circulation on the market, with an average of 3,600 Bitcoins mined every day.
Therefore, in order to slow down the mining speed, Satoshi Nakamoto did two things. First, the Bitcoin code he wrote forced miners to compete with each other for block rewards. As the number of miners increases, mining computing power will become more and more difficult. As the competition for mining becomes more and more fierce, many people who started mining for fun have long disappeared, and those who remain are professionals who have mastered the computing power data of the entire network.
Second, Satoshi Nakamoto set in advance that the reward would be halved every time 210,000 blocks were mined. It is expected that the 420,000th block will be mined at 11:23 UTC on July 9, 2016.
Huh? Isn’t this the first halving?
That's right! Coincidentally, just like the Olympics, the reward is halved almost every 4 years. The last halving took place on December 28, 2012. At that time, many people were wondering if the Bitcoin code was really so amazing that it could automatically halve the reward. Yes! It is so amazing! The Bitcoin network once again proved to its fans: my technology is really invincible! On the day of the halving in 2012, the price of Bitcoin was only $12.25. A year later, it rose to $1,000. Since then, the trading volume of Bitcoin has also increased, and it was once regarded as the most perfect trading asset.
What should miners do?
Miners will certainly want to continue making money after the halving. They are likely to open up new sources of income, such as charging small transaction fees. ARK Invest Bitcoin analyst Chris Burinske found that before the halving day, miners invested heavily in various advanced mining machines. In other words, the cost of upgrading mining equipment for miners will be reduced in the future.
If the price of Bitcoin rises after the halving, it will definitely be good for miners. Most market observers believe that the price of Bitcoin will rise. Bitcoin enthusiast Vinny Lingham has accurately predicted the price of Bitcoin. In an article in May this year, he said that the price of Bitcoin will rise by at least $1,000 between the halving date and the end of the year. He said that in the first few months after the halving, the price of Bitcoin may fluctuate greatly, and it is estimated that it will only reach about $700, but after that it will be unstoppable.
In short, most miners will not lose their jobs due to halving, but not all miners will be immune.
After the halving, who will be out?
Miners with outdated equipment may suffer. Lingham and other industry experts estimate that about 25% of the computers on the entire network will be eliminated by the halving. When old equipment is disconnected, the hash rate will drop and the security of the Bitcoin network will decrease. The last halving eliminated 20% of computers.
That would be a big deal, right?
In theory, this is true, but not necessarily in practice. There is a concept in the Bitcoin network called a 51% attack. That is, miners who control 51% of the computing power of the entire network can arbitrarily modify transaction records or make double payments (double spending). This will eventually lead to a chain reaction that will affect the entire network. However, to truly achieve a 51% attack, it will cost a lot of money and resources. According to ARK Invest statistics, a 51% attack will cost $400 million. One of the major advantages of blockchain (the underlying technology of Bitcoin) is transparency. If someone really tried to conduct a 51% attack, it would definitely be discovered early.
What changes will occur around the halving date?
The first is price fluctuations. In fact, nothing special happened during the last halving. That year, Bitcoin had already celebrated its 4th birthday, and its market value was only 129 million US dollars.
With a market cap of $10 billion, this year’s halving is unlikely to be uneventful. Trading volumes will rise and prices will fluctuate wildly. But what really matters is the hashrate. If miners decide to retire old rigs, the hashrate will drop, just like last time. However, if the hashrate of the Bitcoin network drops to a certain point, it will become profitable to use those old rigs (less hashrate means easier and cheaper mining). Then miners will go back to using those old rigs, and the hashrate will drop again. This back and forth will definitely have a series of chain reactions on the Bitcoin ecosystem.
Mid-July is definitely a tough time for the Bitcoin community, especially for miners. Mining will become harder and less profitable. Maybe transaction fees will change. Maybe some people will no longer see Bitcoin as an anarchist's paradise, but rather believe that it is just a digital expression of the existing financial system. Even if the road ahead is unknown, I believe that the smooth progress of the halving day is enough to prove that Bitcoin has a bright future. |
