The design of cryptocurrencies is unique in a manner that we didn’t witness before. Plenty of them have proven to be true stores of value and seamless mediums of exchanges through their practical uses, public perception, and actual creation. One of the striking aspects which tie many of these themes together is the concept of halving. Halving is the practice that occurs when the rewards of mining a specific block in a crypto’s blockchain get reduced in half after a particular period, usually between two to four depending on the currency’s blockchain specifications.
Consequently, the circulation of the crypto in question is halved. Using the basic ideologies of supply and demand makes them rare over time since there are fewer of them than previously. Effectively, lower supply and higher demand.
As the pioneering crypto, bitcoin was the first example of such an exercise, and its consequent halving dates have all been met with massive interest worldwide. Bitcoin’s halving occurs approximately every four years. The main attraction with halving is the astronomical gain in the value of a crypto that investors anticipate over time. History has proven with bitcoin’s two halvings in 2012 and 2016, respectively, where prices increased exponentially a few years after, specifically the 2017 boom. Towards the end of 2017, 1 BTC reached almost $20,000, having begun the year just tipping over the $1000 mark.
Several other notable cryptos like Ethereum and Litecoin also experienced similar unprecedented price surges due to bitcoin’s increases. Investors are hoping for the same type of increments eventually as bitcoin’s halving took place in May of 2020.
Other well-known cryptocurrencies with halving encoded in them include the likes of Verge, Litecoin, and Bitcoin Cash, just to name a few. A few other notable cryptocurrencies have already been halved in 2020 and will continue so beyond.
The pros and cons of halving
There are future projections of the finite supply of specific coins. For example, the magic number for bitcoin is 21 million coins by the year, 2140. At this current juncture, close to 90% of these coins are already in circulation, though the halving every four years still ensures that we’d reach 21 million by 2140, albeit at a slower and more gradual pace. Unless the principles of halving change in the future, we can only assume that halvings will continue
As already stated, lower supply for a commodity results in higher demand and higher prices, as exemplified by the historic halvings. Traditional fiat currencies are susceptible to inflationary events, such as quantitative easing. The halving of some cryptocurrencies makes them unlikely to suffer hyper or over inflation. For the general public, this is, of course, excellent news as it mostly answers the questions of how value is created and stored with a currency.
The main disadvantages of halving are for the actual miners responsible for mining the crypto from its network and blockchain. Without these miners, no cryptocurrencies would exist. Miners’ rewards are cut in half, though the expenses of running their mining operations still remain the same and would escalate over time. Since mining is a costly process to start and maintain, miners have to mine much more to cover up the shortfall of having their rewards cut in half.
For mainstream currencies such as bitcoin, very, very few individual miners exist due to the near impossibility of turning a profit mining even just producing a fraction of the coin. Many of these miners have joined mining pools to share computational power and subsidize costs. Where halving has had a significant impact on miners, many have continued mining for legacy reasons and the reward of transaction fees for every coin in distribution.
The cryptos that will experience halving in 2020
A few well-known coins experienced halving in 2020, and these were Bitcoin, Bitcoin Cash, Bitcoin SV, Bitcoin Gold, Bitcoin, Zcoin, Blockstamp, and Einsteinium. The last remaining notable coin to be halved this year is Zcash, set to be split on the 18th of November, 2020.
In this event, the rewards will go from 6.25 ZEC to 3.125 ZEC. Zcash uses the project fork of Bitcoin, which is called Bitcoin Core. Like its predecessor, Zcash will have a fixed supply of 21 million coins. Close to half of these coins already exist since its inception on the 28th of October 2016. According to CoinMarketCap, ZEC is the 26th largest crypto by market capitalization, which translates to about 0.16%. When penning this article, 1 ZEC is just a few dollars shy from $60, much cheaper than some of the more prominent cryptos.
The phenomena of halving make cryptos an exceptional proposition both for users and miners alike. However, there are some negative consequences with halving that could affect the future of particular cryptos, and no one knows if the fundamental principles will change. What interests investors the most is the potential for the rise in value, making cryptos still a very untapped financial instrument that can be bought cheaply in the meantime.