KEY POINTS

  • Bitcoin "halving" adjustment has happened last May 11
  • As a result, bitcoin slid to volatile trading
  • Bitcoin dropped 1.3 percent against the dollar in late afternoon trading

The most popular digital currency, bitcoin, has gone through an adjustment Monday reducing the rate of new coins creation. The process is called “halving” and it happens approximately every four years. As a result of the “halving” event, bitcoin slid into volatile trading and slightly lost in value against the U.S. dollar. On the Bitstamp trading platform, bitcoin was down 1.3 percent at $8,620.43 in late afternoon trading of the same day.

The cryptocurrency relies on "miners” who run software that solves highly complex maths puzzles in return for bitcoins. Monday’s halving reduced the reward for unlocking a “block” from 12.5 to 6.25 new coins. Halving was introduced into the cryptocurrency's code by bitcoin’s creator, Satoshi Nakamoto, in order to control inflation.

Since bitcoin's creation back in 2009, this is the third halving event. The first bitcoin halving took place back in November 2012, and the second in July 2016. According to GadgetsNow, the next halving is expected in May 2024.

According to CoinDesk, in order to limit the total number of bitcoins that will ever exist to 21 million, the digital currency’s code will continue to halve every 210,000 blocks. At this rate, it is expected that the blocks will reach zero in about two decades. This measure to control inflation is necessary because cryptocurrencies don’t have their supply regulated by central banks.

Supporters of the digital currency count on this scarcity as part of its value that makes it a potential safeguard during times of economic crisis, unlike currencies vulnerable to devaluation.

Since the start of this year, bitcoin has gained more than 20 percent, touching $10,000 last week. The current bitcoin price is around $8600. The latest gains came after a hedge fund manager Paul Tudor Jones made a statement backing the digital currency as a safe haven against inflation. However, some bitcoin investors have expressed their concerns that halving could make the digital currency less attractive.

Since no single bitcoin mining entity functions as a central bookkeeper, the mining reward represents an economic incentive for “miners” who contribute their computing power to process transactions on the network as well as to secure the network. With the 2020 halving, the immediate implication on the mining reward is that the newly minted bitcoin in a day will fall to 900 units (from former 1,800 units).

Crypto currencies, despite regulatory grey areas, have been gradually making inroads into commerce in recent years with bitcoin leading the way Crypto currencies, despite regulatory grey areas, have been gradually making inroads into commerce in recent years with bitcoin leading the way Photo: AFP / Justin TALLIS