What is Halving?
Halving is a process that occurs in many cryptocurrencies. It refers to the reduction of rewards miners receive when they validate transactions on the blockchain, as per predetermined protocols written into the cryptocurrency's code. This process reduces the rate at which new tokens are created and issued from mining operations, serving as an inflation control mechanism for digital currencies.
The halving process usually happens after a certain number of blocks have been mined and is usually done by cutting the block reward in half. This means that instead of receiving a set amount of tokens for verifying a transaction, miners now receive half of that amount each time they verify a new block.
In addition to controlling inflation, halving also has other implications including reducing miner incentives and potentially increasing the value of the cryptocurrency in the long term. This is because fewer tokens are being mined each time and as demand grows, prices increase.
Halving is a regular event that happens at specific intervals in cryptocurrencies such as Bitcoin, Ethereum, Litecoin and many more. It affects miners directly since they receive fewer rewards each time halving occurs but it also has implications for investors who hold these currencies by limiting supply and potentially increasing their value over time. As such, it is important to understand how halving works so you can make informed decisions about investing in cryptocurrencies.
Simplified Example
Halving in cryptocurrency is like splitting a big pizza into smaller pieces. Let's say you have a big pizza and you want to share it with your friends. But instead of just cutting the pizza into equal pieces, you decide to cut each piece in half. So now, instead of having 8 big slices, you have 16 smaller slices.
In cryptocurrency, halving is similar to splitting the big pizza into smaller pieces. Instead of pizza, the "big thing" being split is the number of new coins that are created and added to the system. So, instead of getting a lot of new coins at once, you get fewer coins, but they become more valuable because they are scarcer. Just like how each smaller slice of pizza becomes more valuable because there are fewer pieces.
Who Invented Halving?
The term "halving" found its origin in the Bitcoin context and was introduced by Satoshi Nakamoto in the original Bitcoin whitepaper published in 2008. It denotes a distinctive mechanism embedded in the Bitcoin protocol, orchestrating a reduction of the block reward for miners by half at approximately four-year intervals.
Examples
Bitcoin Halving: Bitcoin, the first and largest cryptocurrency, has a halving event approximately every 4 years. During this event, the number of new bitcoins created and added to the system is cut in half. For example, before the first halving, 50 new bitcoins were created every 10 minutes. After the first halving, only 25 new bitcoins were created every 10 minutes.
Litecoin Halving: Litecoin, a cryptocurrency often referred to as the "silver to Bitcoin's gold," also has halving events. The frequency of these halving events is about 4 times as frequent as Bitcoin's halving events, occurring approximately every 840,000 blocks.
Ethereum Halving: Although Ethereum, the second largest cryptocurrency, is different from Bitcoin and Litecoin in many ways, it is also set to have a halving event. This halving event, known as the Ethereum Ice Age, will occur when the Ethereum network reaches a total of around 120 million mined blocks and will result in a reduction of the block reward from 3 ETH to 2 ETH.