You may have heard of bitcoin before – the digital crypto-currency that’s kicked up a storm not only in the finance and digital world, but also the energy and efficiency sectors (read more about that here).
So what’s new for the unprecedented virtual goldmine? A big change is causing a shift for bitcoin collectors everywhere. This infographic, provided by the experts at Coin Journal, breaks down the big news.
In July, a major event is occurring in the bitcoin ecosystem: the bitcoin reward halving. What this means is that the rate new bitcoins are created will be permanently reduced by 50%. This undoubtedly will have an impact on the ecosystem.
Bitcoin was designed to simulate a scarce commodity, such as gold, and there will only ever be 21 million.
To understand the bitcoin reward halving, we must first understand how bitcoins are created. Transactions are bundled into blocks. Miners confirm these by contributing huge amounts of computing power and are rewarded with newly generated bitcoin.
The reward started off at 50 BTC per block in 2009 and decreased to 25 BTC per block in late 2014. Starting mid July 2016, miners will get 12.5 BTC per block, marking the beginning of the 3rd Reward Era.
The amount of new bitcoins awards to miners will drop from 3,600 BTC to 1,800 BTC per day. This will decrease the supply of new bitcoins from 9.09% to 4.17% per year.
It is estimated that in 2140, the limit of 21 million bitcoins will be reached. At that time, the block reward will be solely based on transaction fees.
The laws of supply and demand dictate that is demand stays the same, bitcoin’s price should rise after the halving reduces the supply.
Other observers believe that persistent deflation encourages people to hold their cash as it becomes a way of earning a return. In this scenario, the economy would be starved of funds for investment and won’t be able to grow. This theory is held by Matthew Yglesias, an economics journalist at Slate, and other economists.
That said, bitcoin is still in its early dates, and while its fate is still uncertain, what is sure is that the cryptocurrency remains a relatively small part of the financial sector. Compared to the US$14 trillion in the US currency in circulation, bitcoin’s modest market cap remains below US$11 billion.