Context: ‘Bitcoin Halving’ is predicted to happen in April 2024.
What is Bitcoin Halving?
- The Bitcoin Halving refers to the 50% reduction in the reward paid to Bitcoin miners who successfully process other people’s cryptocurrency transactions so that they can be added to the public digital ledger known as the blockchain.
- In order to grow Bitcoin’s blockchain and keep the ecosystem running, Bitcoin miners rely on advanced computer equipment to solve a complex mathematical puzzle through a process known as ‘Proof of work’ and claim their prize, which is currently set at 6.25 Bitcoin (BTC). This intense activity is the reason Bitcoin transactions result in huge carbon footprints and require vast amounts of electricity. No real mining is carried out.
Impact of halving:
- Bitcoin mining increases the supply of BTC in circulation while the Bitcoin Halving reduces the rate at which these coins are released, making the asset more scarce. Scarcity is seen as pushing up prices, as is the case with gold.
- There can only ever be 21 million BTC in the world, over 19 million have already been “mined” or released.
- Bitcoin Halving means it will take far more time for the remaining coins to be mined. A halving takes place after 2,10,000 blocks are mined, and has happened so far in 2012, 2016, and 2020 - every four years.
What is Blockchain technology?
- Blockchain technology is a decentralised, distributed ledger system that records transactions across multiple computers in a way that makes them tamper-resistant and transparent.
- At its core, a blockchain is a chain of blocks, where each block contains data (a list of cryptocurrency transfers or data records in case of Bitcoin).
- Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Once a block is added to the chain, it is extremely difficult to alter, ensuring the integrity of the data.
- The transactions are verified and added to the block through a process called consensus, which involves a network of participants known as nodes, who collectively validate the transactions.
Key features of blockchain technology:
- Decentralisation: Unlike traditional centralised systems, where a central authority controls and manages the data, blockchain is decentralised. It operates on a peer-to-peer network, where each participant has a copy of the entire blockchain, ensuring transparency and reducing the reliance on a single point of failure.
- Transparency: All transactions recorded on a blockchain are visible to all participants in the network. This transparency helps to establish trust among participants and enhances the security of the system.
- Security: Blockchain technology utilises cryptography to secure transactions and control the transfer of assets. Each transaction is encrypted and linked to the previous transaction, forming a chain of blocks that cannot be easily altered.
- Immutability: Once a transaction is recorded on the blockchain, it is extremely difficult to change or delete. This immutability ensures the integrity of the data stored on the blockchain.
- Smart Contracts: Blockchain platforms often support the execution of smart contracts, which are self-executing contracts with predefined rules. Smart contracts automatically enforce the terms and conditions of an agreement, eliminating the need for intermediaries and reducing costs.
Potential Blockchain Applications:
- It was originally introduced as the underlying technology behind the cryptocurrency Bitcoin, but its potential applications extend far beyond digital currencies.
- Transfer of land records (Property record management).
- Digital certificates management (Education, Death, Birth, Agreements, Sale Deeds)
- Pharmaceutical supply chain
- e-Notary service (Blockchain enabled e-Sign solution)
- Farm insurance
- Identity management
- Power distribution
- Duty payments
- Agriculture and other supply chains
- e-Voting
- Electronic Health Record Management
- Digital Evidence Management System
- Public Service Delivery
- IoT Device Management and Security
- Vehicle lifecycle administration
- Microfinance for Self-Help Groups