Bitcoin halving: What its and what it can mean for future of mining – Financial Express

THIS YEAR HAS been remarkable for digital currencies. First, the Indian courts announced that digital currencyexchanges were not in violation of any law andcould resume operations. While people could still trade in digital currencies, they could not do so over exchanges. Then China launched a digital iteration of its currency, Yuan,becoming the first major country to do so. While there is still some time before others follow the China example,yet,itis a significant development. An event related to the digital currency, however, went entirely unnoticed. On May11, the value of mining bitcoin halved to 6.25. This was the third having since the currency was launched in 2009.

This halving will take place till 2140 when mining fees decline to zero, and all earnings are from transaction fees.Arjun Vijay, co-Founder and COO of Giottus Cryptocurrency Exchange, explains the phenomenon of why halvingtook place and what it can mean for the future of bitcoin mining.

There are 21 million bitcoins in total, and 87.5% of them have been mined. What halving does it reduce the cost of mining every time miners hit a specific number of blocks. To make it simple, consider this when bitcoin started, people did not have much knowledge about what it was or how it worked. So, there was a lucrative amount to attract people to find more blocks and clear them-this is also called mining. But as the value of bitcoins starts shooting up, a lot of people thought this was the digital gold rush, and everybody started mining. Now, as more people got into mining blocks started clearing faster. Now every time 210,000 blocks are cleared, Vijay says, the value halves. So, after the first 210,000 blocks, it became 25 bitcoins; at 420,000 it became 12.5, and now at 6,30,000 it is 6.25.

This value will go on reducing till 2140, Vijay estimates, till the value becomes zero. At that time, transaction fees for clearing bitcoin would increase.

As Vijay explains, there is something called block difficulty. So every time the system itself makes it difficult to minea block, and this difficulty keeps on rising, as more people try to do clear blocks. So, there is a safety valve builtinto the system to protect it from too much mining.

Vijay says that over time it has become challenging to mine for bitcoins. People require expensive equipmentand servers to do so.As costs rise, only serious players will remain in the business. The hobbyists and first-time miners may quit the game, as mining becomes too expensive. However, he laso believes that prices of bitcoin mayrise. But bitcoin has its limitations, it can only store 4MB of data, unless blockchains from other countries can interact, its utility wont be complete.

Techsplained @FE features weekly on Mondays.If you wish to send in queries that you want explained,mail us at ishaan.gera@expressindia.com

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Bitcoin halving: What its and what it can mean for future of mining - Financial Express