Category Archives: block halving

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LedgerX Introduces Binary Wager on Bitcoin’s Next Halving Date

LedgerX Introduces Binary Wager on Bitcoin's Next Halving Date

US-regulated derivative platform LedgerX has announced the launch of a new class of Bitcoin derivative based on block-halving dubbed the LedgerX Halving Contract (LXHC).

So far, the larger part of cryptocurrency trading is based on financial instrumentation similar to those of the traditional market. However, as the blockchain and the underlying asset classes are an entirely new class of economic streams, developing new types of derivatives are expected, especially with the type introduced by LedgerX leveraging on the uniqueness of block formation and reward halving.

Bitcoin’s code has been programmed to halve block rewards every four years. So far, two block-halving events have occurred since the genesis block was created. The first was in 2012 when the block reward was halved from 50 Bitcoins to 25 Bitcoins per block at block height 210,000; the second was in 2016 when it dropped to 12.5 Bitcoins per block. In total, about 33 block halving events are expected with the last one expected to occur in the year 2141.

The aim of this derivative contract is to allow enthusiasts and gamblers bet on the date when the next block halving to 6.25 bitcoins per block will happen. Accordingly, this is estimated to occur at block height 630,000 and sometime in April 2020.

According to the blog post, the excitement is in the exact date when the halving will occur, it said: “The date the actual block will occur will also intrigue speculators and liquidity providers”, which will have a huge consequence on the dynamics of Bitcoin’s price should it become widely used.

So far, such derivatives as futures, options, and swaps are common within the industry, as has always been the case with traditional financial assets as well. However, the introduction of this derivative class increases the level of risk and uncertainty as a new determinant is introduced – block halving – and no one knows the precise date when it will occur, unlike the counterpart derivatives and this essentially makes its binary a fundamental economic risk.

If this is readily adopted by the crypto community en masse, it may as well “materially impact planning for investments and operations”, LedgerX suggests.

Intriguing enough, this may be another attempt to lure in sophisticated investors with a higher inclination towards binary options. However, for risk-averse investors, the sidelines may be cramped to see how Bitcoin survives the tempest, as this is likely to raise the volatility index for Bitcoin if it is adopted.

It’s been observed that with a new Bitcoin derivative class introduced, the cryptocurrency market takes a jolt. This may as well introduce another bull as with the case of CME and CBOE’s introduction of futures contracts in 2017 – which was first of its kind, and it saw Bitcoin reaching highs of USD 20,000.

Moreover, last year saw price fluctuations when the community expected Bitcoin exchange-traded funds (ETFs) to become a norm within the crypto community. However, when expectations were cut short elucidated by nine rejected ETF applications by the SEC, conversely, the market took a hit.

The onramp towards complex markets continues on the rise, with each provider targeting the institutional class of investors which are perceived to be pivotal to the next uptrend in the crypto market.

 

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Bitcoin Block Halving Schedule

Bitcoin is programmed to have a maximum supply of 21 million coins, with diminishing mining returns accomplished by cutting the mining block reward in half every 210,000 blocks, until eventually no more Bitcoins are mined. This article explores the past, present, and future of Bitcoin block halving, and its impact on mining revenue and profitability.

Initially, the reward was BTC 50 per block and this was the case until 28 November 2012 when block 210,000 was reached. At that point, the reward was halved to BTC 25, a reduction from USD 1,250 to USD 625 at the time. Bitcoin price strongly increased after that though, and when the next block halving occurred on 9 July 2016, which brought the reward down to BTC 12.5, this represented a decrease in the block reward from USD 16,500 to USD 8,250. This was the last time the reward halved and as can be seen, Bitcoin price has been increasing so strongly long term, that even with block halvings, Bitcoin miners are receiving more revenue than ever from each block. Right now, the block reward is worth roughly USD 84,000.

As of this writing on 26 August 2018, Bitcoin is at block #538,658, 56.5% of the way towards the next block having at 630,000 when the reward will be reduced to BTC 6.25 per block. This is on track to occur in April or May 2020; the timing can’t be measured exactly. Bitcoin has an average block time of 10 minutes, but this isn’t exact and tends to be an overestimate since hash rate is strongly increasing long term, but the difficulty which controls the block time is only updated every 2,016 blocks, about every two weeks.

It is important to note that most of the Bitcoins that will ever exist have already been mined, with 17.233 million Bitcoins in circulation, or 82% of the total supply. This means that only 3.77 million Bitcoins will ever be mined for the rest of history, making it quite obvious that mining revenue in terms of Bitcoin will inevitably dry up. However, if Bitcoin continues its long-term trend of increasing in price by orders of magnitude, then future transaction fees in each block might be worth as much as the block reward currently, in terms of USD.

The next block halving after 2020 will be at block #840,000. This will likely be in 2024, since mathematically at a block time of 10 minutes the block halving is every four years. There will likely be block halvings around 2028, 2032, 2036, 2040, and so on and so forth, until eventually the block reward will be less than  the smallest unit of Bitcoin, 1 satoshi. Once the block reward declines below 1 satoshi it will become zero and no more Bitcoins will ever be mined, miners will only be paid with transaction fees. This will occur at the 33rd block halving, approximately but not exactly 132 years after the genesis of Bitcoin which is the year 2,141, depending on the future acceleration and deceleration of the hash rate.

Although block halvings appear to put strain on Bitcoin miners via chopping revenue in half, long-term block halvings are integral to the limited supply of Bitcoin.

 

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