BITCOIN HALVING (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     27th February 2024        
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Context: As athletes train for the 2024 Games in Paris this summer, crypto traders and Bitcoin miners are preparing for what is known as the ‘Bitcoin Halving ’ predicted to happen in April.

Bitcoin Halving

  • Bitcoin: It is the first decentralized cryptocurrency. 
  • Bitcoin halving: It entails a 50% reduction in the reward granted to Bitcoin miners for processing cryptocurrency transactions and appending them to the blockchain.
  • Proof of Work: Bitcoin miners employ advanced computer equipment to solve intricate mathematical puzzles via the Proof of Work mechanism, essential for expanding Bitcoin's blockchain and sustaining its ecosystem.
  • Environmental Impact: Bitcoin mining, despite not involving physical excavation, contributes to significant carbon footprints and energy consumption due to the intensive computational processes required for transaction validation.
  • Mining Competition: Bitcoin miners, equipped with sophisticated technology and operating on an industrial scale, engage in fierce competition to be the first to solve the mathematical puzzle and claim the current reward of 6.25 Bitcoin (BTC).
  • Reward Fluctuations: Although the Bitcoin reward remains fixed, its actual value fluctuates according to market BTC prices and the timing of the reward owner's decision to sell, highlighting the dynamic nature of cryptocurrency economics.

Importance of the Bitcoin Halving for Crypto Investors

  • Scarcity: Bitcoin mining increases the supply of BTC in circulation while the Bitcoin Halving reduces the rate at which these coins are released, making the asset more scarce.
  • Limited Supply: There can only ever be 21 million BTC in the world, with over 19 million already mined.
  • Global Mining Dynamics: Corporate and independent Bitcoin miners are globally distributed, seeking cheap electricity prices in countries like Kazakhstan and Iran.

oChina, previously a dominant force in Bitcoin mining, witnessed a shift due to government crackdowns, leading to a migration of miners to other countries.