Once in four years.
That’s how long it takes for a Bitcoin halving event to come about.
The long-awaited Bitcoin halving event of 2020 is less than two months away. It is perhaps the most anticipated occurrence by the Bitcoin community in the short-term future.
So, what is Bitcoin halving? And how does it affect Bitcoin mining economics?
Bitcoin halving refers to the reduction in Bitcoin block rewards by half. After every 10 minutes, on average, a Bitcoin block is released into the network. For every block of Bitcoin transactions, there are mining rewards for the miner (or a pool) who successfully adds the block to the Bitcoin blockchain.
This is when the next halving is scheduled to occur. Currently, each block has a reward of 12.5 Bitcoins. With the halving event, the rewards will go down to only 6.25 BTC.
Such a drastic cut in supply adds to Bitcoin scarcity. Going by basic supply and demand metrics, the price of Bitcoin is expected to get a bump from the constrained supply.
Before delving deeper into halving, let’s look at the variables that affect Bitcoin mining profitability. They are:Price — Mining is more profitable when prices are high. Great Bitcoin prices justify your mining costs. However, miners with the most powerful machines will realize profitability as long as Bitcoin has some value.
Mining Difficulty — With more miners and halving, mining has become more difficult with time. The more miners there are competing for a block reward, the more difficult the problem will become. The opposite is also true. If computational power is taken off of the network, the difficulty adjusts downward to make mining easier. Technological advancements mean that modern, sophisticated equipment competes better as mining gets more difficult.
Energy costs -The lower your electricity costs, the more profitable your mining results will be. In Hawaii, for instance, you pay an average of 29 cents per KWH. This rate means that it is not profitable to mine Bitcoin at home.
Think of halving in inflationary terms.
If a Central Bank decides to print excess money, the value of each unit of the currency goes down. Inflation skyrockets, and commodity prices go up. Think of Zimbabwe or Venezuela as extreme examples of hyperinflation.
On the other hand, if the government constrains the supply of money, inflation becomes lesser because the money supply is tighter. There is less money to go around, but each unit of money buys more.
In contemporary economies, governments have gone for the former model. Therefore, fiat money is always losing value with time. What $100 could buy you in the 70’s needs about five times that today.
Bitcoin is a bold alternative to this order of things. Instead of having a monetary system that depreciates with time, Bitcoin turns the tables by constraining the supply every four years. Therefore, each halving event cuts block rewards by half.
Indeed, it holds true that Bitcoin is not continually appreciating. Even with the halving, volatility is still a distinct reality. However, in the grand scheme of things, Bitcoin has greatly appreciated in the couple dozen years it has been in existence. Compare it to a blue-chip stock like Apple.
Apple stocks can fluctuate in value from $800 to $100 in a given timeframe. The underlying fact that it is still an Apple stock, the company that produces universally recognized products, does not change.
Therefore, Bitcoin prices have their cycles. However, the average growth trend remains positive. The halving event can have short term and long term consequences depending on prevailing market conditions.
Historically, Bitcoin prices have not exploded soon after halving events. Block rewards go down by half, but transaction fees remain the same. Accordingly, your mining profits for the same hash power don’t necessarily fall by half.
Think of mining difficulty by the number of people mining gold at a given time. If a gold mine has 100 nuggets of gold and you are the only one mining gold at the time, you can get the entire 100 nuggets. Suppose you have 100 gold miners in the same mine, each with equal mining capabilities, the 100 miners get one nugget each.
Extend the same logic to Bitcoin, the more the miners, the less Bitcoin each can get.
But prices are an X factor here. The more people that use and transact Bitcoin, this activity can be profitable for most miners. Bitcoin mining also has the variables of power costs, which make some miners invest less per mined block than others.
Halving will, therefore, price out people who have high power costs first. Miners like VBit Technologies, who have invested in cheap renewable energy, can absorb the effect of halving seamlessly. Remember, Bitcoin prices will likely not see an immediate bump from the halving. The rewards from mining Bitcoin have to outweigh power costs.
Accordingly, many miners without efficient power will be pushed out of business. There is a window between the halving and price bumps to justify the cut in supply. A lot of miners will not be able to ride out this period.
This fact means that the miners who remain in the game will have even bigger profits when prices adjust. After the halving, prices could remain at existing rates for about four months. This pain period will be tough for miners with high power costs.
VBit Technologies has significantly lower power costs, meaning that they remain profitable as long as Bitcoin has some value.
In the end, a resilient miner can make significantly more, balancing out the cuts between the halving and price increase.
Mining difficulty also historically lags behind price movements. Therefore, it is prudent to plan for the long haul. Short term volatility may work in your favor, but during the good times, plan for the rough patches. Money management is critical. If you currently make more mining revenue than your monthly payment, plan your finances for the painful periods.
Bitcoin mining has a lot of similarities to other facets of the economy and investments. There are periods of extraordinary prosperity and others of anguish. The same way you need collateral and savings in your other investments extends to Bitcoin mining
If Bitcoin was to go bust, a decade is more than enough time.
The fact that Bitcoin is now attracting institutional investors means that it is an increasingly popular investment. Moreover, government agencies like the IRS now have Bitcoin as a constituent part of the tax regime.
This level of legitimacy is unprecedented and gives you an idea of how big Bitcoin can get. The popular saying that death and taxes are the two constants in life is poignant. Bitcoin, now, shares this long-term certainty.
You may be tempted to ask: if Bitcoin prices will go up a few months after halving, why don’t I just purchase BTC and wait it out?
In the last Bitcoin halving event in July 2016, the newest mining equipment was the Antminer S9. Now, the most popular is Antminer S17+. In June 2016, it cost $2,100 to purchase an S9 miner.
Let’s say; you decided to buy instead of mining.
At the time, at $2,100, you would get 3.15 Bitcoins at $600. That is still a high return, given that each Bitcoin now costs about $8,000.
With buying, however, the normal human instinct is to sell. Therefore, there is no telling that you wouldn’t have traded the Bitcoin when it was up by even $1000.
Bitcoin mining takes out human error. If you had used mining, adjusted for mining difficulty over these four years, you would end up with 5.28 BTC. Investing in the proper equipment for the long-haul gives you both discipline and high margins in the long-haul.
Halving will definitely be tough for a good number of miners.
However, VBit Technologies has procured the latest equipment to be even more competitive in the subsequent months. Besides, VBit has undertaken free upgrades and maintenance for a year on existing packages. With VBit as your partner, you have a reliable ally with expertise in the complexities of the mining landscape.
Furthermore, the real edge comes in the drastically lower power costs. VBit has mining facilities located in convenient locations in the USA and Canada to leverage cheap renewable energy and maximize your earnings. VBit Technologies is a revolutionary way to mine remotely and earn passive income.