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What is a "Halving?"

The word "halving" is derived from the English word "half."

It represents a fundamentally important event within the cryptocurrency space.

A careful investor needs to be aware of what is meant by halving so that he or she can study its relative cycles.

Halving is the event through which the block rewards of miners of a coin are halved.

The most prominent cryptocurrencies that experience this phenomenon are Bitcoin and Litecoin as their ecosystems are based on proof-of-work consensus mechanisms.

Digital currencies that undergo Halving have a specific command in their code that requires the algorithm to "cut in half" a specific amount of new coins.

They are mined every given number of mined blocks, and the procedure is repeated until the rewards are zero (i.e., the point at which no more coins can be mined).

Therefore, it is quite evident that halving is part of a deflationary model.

Usually, after each halving, the value of mined coins increases significantly (in other words, supply decreases), considering demand stable.

Understanding the concept of Halving is critical to a proper reading of a cryptocurrency's price action as there is a proven positive correlation between Halving events and price (in BTC, in particular).

Historically large upward trends have occurred as a result of such an event.

Bitcoin's last Halving occurred in May 2020. Mining rewards were cut from 12.5BTC per block to 6.25BTC.

If we do the math, every 210,000 blocks, the amount of reward should be cut. According to the original BTC code, there can only be 64 halvings. When the last BTC is released, 21 million coins will be in circulation in the market.

This number is finite and can never be increased.

Final considerations:

If we were to follow the economic reasoning behind a proof-of-work coin to the letter, it seems almost obvious to think of Bitcoin as an asset that mathematically is destined to grow.

The economics behind a proof of work coin are for all intents and purposes deflationary, but that does not mean to say that it will mandatorily have to grow.

The market price remains controlled by the composition of supply and demand.

Analysis of the distribution of BTC clearly shows how only 2,000 individuals own 42 percent of Bitcoins, about 150,000 another 45 percent, and 25 million individuals collectively exchange only 13 percent.

Should there be concentrated selling pressure, with no demand to buy, no halving would withstand the collapse of BTC.

This example is in no way meant to discourage anyone from investing related to the cryptocurrency world but only seeks to demonstrate how:

"it's not halving understood as a supply halving mechanism that mathematically raises the price of BTC but is only the reason why demand overreacts to supply."


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