At Vimba we like to keep our savers in-the-loop and educated with all things Bitcoin. If you're just getting into Bitcoin you might be wondering what in the world is the Bitcoin Halving?! Don't worry, we've got you covered!
Here's a quick breakdown on what the halving is and why it exist.
Bitcoin Mining Basics
Similar to gold Bitcoin has to be mined, but instead of a chemical process which is used to extract gold, Bitcoin minning is done by computers solving complex problems on the Bitcoin network. To incentivise people to mine Bitcoin there is something called “block reward” which exists to reward miners for their work as this can be expensive and has high demands on electricity and equipment.
The first block reward for Bitcoin when it first appeared was 50BTC, which might sound like a lot to us now, but back then it was literally worth pennies and the demands of mining were a lot less, meaning you could mine using only a laptop.
To remember why this is important we have to consider two facts about Bitcoin:
- There is a finite and limited supply of 21 million
- Every 210,000 blocks the reward for miners decreases by 50%
Below is a breakdown from 2009 - 2020.
The main reason this is done is to keep inflation under control. The problem with fiat currencies is that they are controlled by central banks which means they can simply print more when they need to. Due to the rules of supply and demand, the more money you print, the less value it has which in the past has had devastating effects when not properly controlled.
Zimbabwe is a recent example:
2007: Zimbabwe suffers a terrible drought and political changes and tension lead to the seziures and redistribution of land. Zimbabwe's leaders attempts to solve the country's growing problems by printing more money.
2009: Exchange rate: Z$35 quadrillion to $1. Zimbabwe stops printing their own currency and country adopts USD and South African rand.
2015: Zimbabwe plans to completely switch to United States Dollar
2019: Government plans to reintroduce RTGS dollar known as the “Zimbabwe dollar” and forgein currencies are banned
Current inflation rate: 97.9%
Why Bitcoin is different?
Bitcoin was created to be a commodity like gold. There is a limited supply of gold in the world which means that with each gram of gold extracted, there is less gold remaining and therefore harder to mine. Due to its scarcity, gold has maintained its value for over 6,000 years and the hope is that Bitcoin will do the same.
What will happen to the value of Bitcoin?
The truth is no one knows. At Vimba we believe in the future of Bitcoin and its potential as not only a store of value, but a truly borderless currency. We always encourage our savers to save what they can and to remember that as with any investment prices can fluctuate.