Topic: Understanding bull and halving. (Read 316 times)

I agree with you but this FOMO hype is very speculative and it's an unpredictable phenomenon, so nobody can say there will be an bull run automatically triggered by this halving. We are now 6 days before this event and Bitcoin is still $70 000. In addition, I haven't seen datas showing a significant increase in real life adoption. ETF Bitcoin approvals doesn't mean people are using more often Bitcoin to pay goods and services in their daily life.

The total supply will be little less than 21M bitcoins as long as main features of Bitcoin protocol and rules aren't changed^{I don't expect to see such a change of very basic properties of Bitcoin}. New supply of coins per block is halved at the so-called halving events which are scheduled after 210,000 blocks have been appended to the blockchain. Every 210,000 blocks a new "epoch" starts with block subsidy (excluding transaction fees) being halved^{by binary shifting the binary representation of amount of Sats of the block subsidy}.

It's this epoch length of 210,000 blocks together with the binary halving by bit shifting the block subsidy in Sats that define the total supply of 20999999.97690000BTC as Lucius already stated to be precise earlier in this thread.

We will see if and how the expected bull run will manifest itself for the soon to begin 5^th epoch. Bitcoin's intrinsic mechanics are set screws but people and "market" have their own opinions and outcomes.

Due to certain unclear or somewhat vague statements, I have successfully updated the Op making most of the key points distinct and and still as summarized as possible. Thanks to Cricktor, as well as everyone who made little corrections, the most attention and changes was given and made to the part that discussed Bitcoin mining.

This is very true as a lot of persons confuse halving for burning. And although some Bitcoins in the past were burned, burning Bitcoins currently won't be anywhere near easy because of the fact that it has grown so much in value . therefore the person burning it would suffer great loss presently compared to when Bitcoins was just a few cents or dollars.

While we're approaching the bull run, many are still misinformed about what halving is all about. I've seen people on social media explaining that halving is going to cut the supply of Bitcoin which is totally wrong. The supply is fixed to 21M but the reward for miners will be cut into half.

It happens after the halving since it's just a one-time event every 4 years cycle. As it works like an after-shock for the price of Bitcoin. While it's true that other factors are there like the Bitcoin spot etf approvals and the volume that it gets but the main thing every bull run certainly is the halving.

The proces of Mining is really a very complex topic and difficult to describe but Cricktor gave a really good insight in his reply, how this whole "mining" process is done and more details what's relevant as well.
Maybe you can link his comment in your OP or add some parts, where his description is more precisely explaining the process of Bitcoin mining.
Or simply add a link below: If you want to read more about the mining process, Cricktor has explained some details here.

After all, I agree with your points made and Kudos for including my table in your nice post (I feel quite honored to have it included here  ).

The supply cut is not doing this alone!

It's a thing of supply and demand, there are coins of x value being mined and added each day, and there is an amount of money waiting on the side buying those coins.
If the value of the daily added coins is lower than what money is ready to buy you will see a price increase if not it will decrease! What some  ignore is that a doubling of the price erases all the gains in terms of diminished daily supply, so despite the halving at the current price, you will have a bigger inflow in terms of USD value of coins on the market than 3 months ago!


Coins that are used as fees are not part of the "inflation", those coins have been already mined previously, and they are just changing hands as a payment for service!

Seeing information's like this which tells and educate more about bullrun and the halving will still give many the insight on how the whole thing works and what we should further expect from it, some may say it has all ended with the miners after the entire 21,000,000 blocks have been mined, not knowing that the miners will still earn from the transaction charges we are paying for performing our transactions, same also about bullrun, there are many things other people have misunderstood concerning how it works and what we should expect.

Bitcoin Monetary Inflation ignores the calculation of the impact of fees. schemes deal with fees as small value that can be ignored, but with the increase of transaction fees in Bitcoin, after some halving new Bitcoin that is produced will be less than 0.09765625, I think that the transaction fees will be higher than 1 Bitcoin, which means that the effect of halving will be less. Until the effect ends around ~2048 when transaction fees are higher than 0.05 BTC.

Imagine having less than 5 bitcoin after the halving. It is really that much of an impact especially when we arrive in the later years, it’s more scarce and that is what we can take advantage of right now. We can then take more and buy more BTC now and hope for the best later to profit.

Thanks for sharing OP.

You can get the table of Bitcoin supply and time from Controlled supply and another topic on Equivalent Network Time.

Halvings are all coded by Satoshi Nakamoto and halvings don't occur as surprising events but with halving events, Bitcoin is mentioned more on media. This is a massive free marketing on media for Bitcoin, and helps Bitcoin market to have new participants either investors, traders or speculators.

New people join the market, new capital flows in, demand increases, price will rise by Supply and Demand Principle.

Just as you said it is FOMO that impacts the raise of the market. I will say the reason why halving period is always pointed at as is because of the law of demand and supply which we all know is what affects the market. Many have this belief that if the mining of bitcoin is halved the supply definitely decreases and with the growing adoption rate the demand will only increases and if the demand is high in respect to the supply the price increases, but what surges it up is that people FOMO in buying. This theory works on all assets that have limited supply

AFAIK nobody has still been able to prove that reducing the mining rewards is able to increase the value of one Bitcoin. IMO it's just a misleading narrative intended to attempt to create FOMO with the so-called dumb money of small investors. How "the amount of coins pumped into circulation is halved" could cause "the value of the circulating supply to rise" while there is no coin burning and the circulating supply is just increasing slower than before? It's not rational. In addition altcoins without any mining or stacking rewards and a closed supply are also seeing their price increasing at the moment.

If you are already looking at the data in the table, then at least you can write them correctly. Reward era 4 ends with 19.68xxx BTC, which is 93.75% of the max supply, and this will happen in about two weeks. One more thing, if we're going to be precise, it will never be exactly 21 million BTC, but 20999999.97690000 BTC.

Your definition of mining process needs to be completely reworked.

Mining is not done by running nodes and there is a difference between full nodes and miners.
This process does not happen from time to time, as a delay of a few seconds may cause you to lose the block reward.
There are no specific standards, but rather keep changing the nonce
Powerful computers are not used in mining. Computers are multi-purpose, while Application-Specific Integrated Circuit (ASIC) is used for mining.

The mining process is not linked to a change in the price of Bitcoin. Bitcoin mining will continue, and after several years there will be no effect of halving despite its occurrence. Therefore, there is no effect of mining as much as it is a change in the factors of supply and demand.

You're right, the very main reason to do "Bitcoin mining" is verifying unconfirmed transactions and confirm them by putting them into new blocks that are appended to the existing blockchain. If this doesn't happen, Bitcoin stops to work. It's true, the incentive to do this is the block subsidy and transaction fees collected by the miner who found and appended successfully the next block.

When block subsidy goes to zero in era 34 (see table in first post) there still will be the transaction fees if up to this era Bitcoin is still working the same as today. The total supply of Bitcoins is limited, capped due to the halving mechanism. Transaction fees don't add new coins, they re-distribute only already existing coins.

When you put it like this, someone can misunderstand it to be that miners will no longer be needed when the total supply is in circulation, which is not the case. The major task "miners" do is to confirm transactions and add them to the next block. Without this Bitcoin will have no value as it cannot be sent from one person to another, the coinbase reward is an incentive to attract miners and keep the system decentralized.

Bitcoin mining is infinite, hopefully. The supply is not.

- Jay -

I'm not really happy how you describe this. It's not wrong but it doesn't sound right either.

Would you call a double SHA-256 hash solving complex cryptographic math? It's just a hash function, a recipe to produce a fixed length output from arbitrary input data with the property that any small input data change yields a completely unpredictable large change in output. There's no solving of math involved. Miners search a hash of the block header for a new block of transactions which meets certain criteria.

Miners assemble a block template of new yet unconfirmed transactions which define some bytes in the block header, the Merckle root. This is how a block's transactions spill unique data into the block header. Any change of a block's transactions would change this Merckle root in the block's header area (80 bytes of a block). In order to find a valid block's header hash that meets required criteria by current mining difficulty, miners have to apply subtle changes to the block's header or transaction arrangement/data of coinbase transaction and hash the resulting block's header until criteria are fulfilled. Before any new hash operation of the block's header there has to be some minor change applied (e.g. iteration over the nonce field, but also other changes are required in addition to nonce iteration).

Computers are usually versatile computing devices. Miners use hashing devices with specialized integrated chips that can only perform one thing very fast and as efficient as currently possible: double SHA-256 hash 80 bytes of data. Those Application Specific Integrated Circuits do just one thing, but that very fast and efficient. You can't use them for anything else, maybe except as a clunky paper weight.
(OK, because current mining gear is so fast with hashing, those devices are a little bit "smarter" than being only able to double SHA-256 hash a block header. They likely can iterate the nonce variable on their own in the search process for a valid block header hash.)

I think it's not important to go into deep details, I added details in case you don't know them as needed, but your initial description of Bitcoin mining wasn't all in all correct in my opinion. I can't put it in simple words myself.



We are currently at about ~19.675 million Bitcoins mined (93.7% of total supply, my source being Network Summary section). Your percentage is a bit too low for my taste.


There are multiple ideas behind Bitcoin's halving mechanism. One is to limit total supply and additionally to have a deflationary supply causing in theory a natural rise of price as long as demand for coins stays up and doesn't fall. In a simplistic market situation demand and supply are main factors to define the value. If demand stays up or better grows, but new supply becomes smaller and smaller, price/value should rise.

In the block header the miner is hashing, they include the previous block header's hash not the header itself and it is the representative of the entire previous block as a way to create the "chain".

In any case, something interesting I realized from the image you shared is how the effects of halving is diminishing fast. We are already at >90% mined supply and it is going lower. So even though it is still effective (450 less fresh bitcoins to be sold every 24 hours), after a halving or two it should not be as effective.

Of course it's the bull season and definitely every Bitcoiners is quite excited about it. Now what really is Bitcoin bull about? A few persons may not get the full idea about it , while some others have the idea that Bitcoin price increases. However there may be a few unanswered questions like
How does the bull make Bitcoin price increase?
How often does the bull occur?
What is it's importance? And lots more.

These questions can be easily answered with a good understanding about  certain Bitcoin basics. To proceed let's start with ;

BITCOIN MINING

How are new Bitcoins created?
This may seem  a little complex to a newbie however it's quite understandable. Now here is how it works ;

The Bitcoin network uses a protocol based on proof of work (POW). In other words, Miners use a series of  hash function, a recipe to produce a fixed length output from arbitrary input data with the property that any small input data change yields a completely unpredictable large change in output.This is conducted on the Bitcoin network from time to time by the use of hashing devices. These devices are built with specialized integrated chips that can only perform one thing very fast and as efficient as currently possible: double SHA-256 hash 80 bytes of data. Those Application Specific Integrated Circuits do just one thing (hashing), but are very fast and efficient. Miners are rewarded with Bitcoins for every complete series of valid hashes they determine during hashing.
The goal of miners during the hashing process is to find hashes that meet a particular criteria. Once found, they are broadcasted to the network and then added to the next block. During the Bitcoin mining process miners are able to also confirm transactions by adding them to the next block. In order to make an efficient mining process, miners make use of ASICs as opposed to regular computers  based on their efficiency in completing a single task compared to regular computers. These ASICs apply hashes repeatedly to the block header including the previous block header. The previous block header carries data  like hash, transaction data and nonce.

Now how does the Bitcoin mining process relate to the bull season?


BITCOIN SUPPLY

Now , although Bitcoin uses a proof of work protocol in creating new coins and also adding to the circulation, Mining new Bitcoin  is not unlimited or infinite. Now this is because the total amount of Bitcoins that can ever be mined and also circulated is 21 million. Currently, over 19.7 million which is about 93.8% of the total supply has been mined.
You may probably ask, why is the Bitcoin supply limited and why has so much of it been mined so quickly already?

Well to answer these we have to take a tour about another important Bitcoin event known as ;


BITCOIN HALVING

This is the process where the bitcoin POW reward is cut in half. This means that the rewards miners get when they successfully meet the hashing criteria for mining is cut in half. This helps to slow down the rate at which  new coins are pumped into circulation. Although Alot of Bitcoins have been mined , the rate at which new coins are pumped into circulation, slows down exponentially after every halving event also making sure the total supply isn't mined too soon. Bitcoin halving occurs after the successive mining of 210,000 blocks which takes about four years. The Bitcoin halving protocol is more like an added safe guard to Bitcoin price. As simple economics evaluates that with exponentially increasing supply leads to drop in value and thus leading to inflation. Below is a table showing some important halving information.


img source--->
1miau post on 100 days to halving


Now in summary, the answer to the big question is ; the biggest bull Bitcoin experiences is during the halving period where the amount of coins pumped into circulation is halved, causing the value of the circulating supply to rise. Although other market factors also contribute, halving is the main reason for the bull. This is because since  Bitcoins become scarce, the value of circulating ones increase making Bitcoin able to combat inflation.

Thanks to Cricktor for additional information