What is the bitcoin dividing?
TLDR: The swelling pace of bitcoin goes down.
Bitcoin exchanges are assembled into squares, and when a digger makes one of these squares, they are remunerated for this with some bitcoin. A square of bitcoin exchanges is added to the bitcoin blockchain by excavators like clockwork overall.
When bitcoin first began, the prize given to a digger for making a square was 50BTC for every single square added to the blockchain.
Each 210 000 obstructs that are mined on the bitcoin blockchain (generally like clockwork), something truly intriguing occurs. The measure of bitcoin that is given as a compensation to diggers who mine each square, is sliced down the middle, in an occasion currently known as “The Halving”.
The first bitcoin square was mined on 3 January 2009, and the prize was first divided after 210 000 squares on the 28th of November 2012, from 50BTC down to 25BTC. After the following 210 000 obstructs, the prize was divided again on July ninth, 2016, down to 12.5BTC, and as you can presumably figure, the following splitting occasion will lessen the square award to 6.25BTC per square.
The expansion rate for bitcoin hence goes down at regular intervals, and inside a couple of years, will be lower than some other cash.
For what reason is the mining reward divided each 210 000 squares?
There is a constrained inventory of bitcoin, just 21 million will ever exist. When Satoshi Nakamoto made bitcoin, he required a reasonable method to disperse bitcoins, so he chose to part with them for nothing, as a compensation to diggers for making the squares.
Satoshi Nakamoto structured the development supply of bitcoin to begin high, and bit by bit lessen after some time. This implies after some time, the expansion pace of bitcoin decreases. This implied toward the start, it was anything but difficult to appropriate a lot of bitcoin rapidly while they were modest, however as bitcoin becomes more established, and turns out to be increasingly significant as the stockpile of new bitcoin being decreased methods it turns out to be all the more rare.
The diminishing pace of development implies that the initial 20 million bitcoins will be mined by around 2025, leaving 1 million coins to be mined throughout the following century.
How does the halving event affect the bitcoin price?
TLDR: Number Go Up!
Supply and demand
The price of bitcoin is partly based on supply and demand. Quite frankly, if there was no demand for bitcoin, the price would be zero, and you would probably not be able to even give it away free.
The demand for bitcoin is there because it is scarce and useful to people. As the amount of people who desire bitcoin grows, so does the demand. With increased demand, comes the increased price, and with the new supply of bitcoin being created getting cut in half, you effectively double the demand.
Almost everyone has experienced how things go up in price when there is a shortage. Unless the demand goes down with the shortage, then the price always goes up. When there is more bitcoin for sale than there are people buying, the price goes down, and vice versa.
There are now record numbers of people registering on exchanges daily, and wallet downloads are increasing exponentially. The amount of News stories that are across major news channels is more than ever before.
Miners will only have half the amount of bitcoin to sell
The bitcoin miners need to cover their costs of mining, and so a large portion of bitcoin that is received as rewards by miners each day, is sold to cover costs. Every day there is around new 1800 bitcoin given to miners (12.5 bitcoin reward per block * 144 blocks a day = 1800) and of that there is a large portion that is sold.
If miners sell 50% every day, that means at the current price of R115000 per bitcoin, there is bitcoin to the value of R103 500 000 being sold each day. That downward pressure in price created by miners needs to be absorbed in order to maintain the current price and keep it moving sideways each day.
With the bitcoin halving event cutting the miners reward in half forever, miners will only have half as much to sell going forward. There will therefore be a bigger demand for bitcoin, and the price should go up exactly like before with the previous two halving events.
Bitcoin Stock to Flow ratio gets doubled
Bitcoin is valuable because it is useful, and it is scarce, and is the first digitally scarce object the world has ever seen. Bitcoin has been called ‘digital gold’ because of its similarities to gold.
Gold and bitcoin are both referred to as ‘Hard money’ as they are hard to create, this is opposed to ‘Easy money’ such as government money, which is easy for a government to create / inflate / debase.
It is this consistently low rate of supply of gold that is the fundamental reason it has maintained its monetary role throughout human history. – Saifedean Ammous
The Stock to Flow ratio (SF) of bitcoin shows how the scarcity of bitcoin increases over time. Metals like gold and silver have a higher SF, than things like copper or zinc. Bitcoin has an inelastic supply, and no amount of mining will enable you to produce it faster than every block of 10 minutes on average.
The of bitcoin can be quantified by the SF (existing supply growth rate) in the following way: SF = Stock / Flow
- Stock is the amount of bitcoin that has already been mined. In something like gold, this is the existing stockpiles that exist above ground.
- Flow is the annual production of bitcoin or gold for example.
When we have the 2020 bitcoin halving, the mining reward will be cut in half, from 12.5BTC per block, to 6.25BTC per block. This means the SF of bitcoin is doubled after the halving, and be closer to Gold in terms of SF ratio.
At the time of the halving in 2020, there will be approximately 18 375 000 BTC in circulation, and the annual production (Flow) will drop to 328500BTC per year (6.25BTC per block @ 144 blocks per day * 365 days per year).
This will put the SF of bitcoin after the 2020 halving at 55, much closer to that of gold!
What does the high Stock to Flow mean for the bitcoin price if true?
If you want to try to predict the price of bitcoin based on its scarcity and the Stock to Flow model, then you will be surprised to see the historical value of bitcoin in a log chart, overlay-ed with the stock to flow ratio values