11 octubre, 2018 0

Know some benefits and disadvantages of halving

Know some benefits and disadvantages of halving

Halving, as we have already discussed, is the process through which the reward given to the miners for their work is reduced by half, after having reached a number of completed blocks. This is a process that would entail a series of benefits for the users of a crypto, but to which a series of disadvantages can be seen. Thus, we will talk in this article about some benefits and disadvantages of halving a crypto. We hope it helps.

Know some benefits and disadvantages of halving

Benefits

Like all processes, halving has certain benefits and certain disadvantages to take into account when discussing it. First, we will discuss what the benefits of this reduction are:

It can increase the price of a cryptocurrency

This is so because, by decreasing the number of cryptos that are given as a reward, there would be a lower amount of circulating cryptocurrencies on the market. Thus, the demand would be the same, but the offer is lower. And if in conjunction with this a work is done to improve the usability of the crypto, the demand would increase. This would cause the price of a cryptocurrency unit to increase due to the shortage of it. And if the price of a unit increases, it can likewise increase the profit of the miners.

It reduces inflation

As we explained in the previous article, by decreasing the reward of the miners, the inflation of the currency is suddenly reduced. This is due to the fact that it works similarly to banking entities should carry out their job. These must create money at a rate commensurate with the amount of goods and services exchanged by citizens with that currency. By creating more money than that amount of goods that can be accessed with the currency, inflation increases.

By reducing the amount of cryptocurrencies that are circulating in the market from time to time, the possible inflation that can be created is reduced and a rate according to its usability is maintained. This brings benefits over time to those who acquire cryptocurrencies, since their price and value will be maintained over time.

It can help to plan the digital economy

Being that this is an event of public knowledge, people can plan their economic movements based on halving. Even when there is no date, tracking the completed blocks you can have an estimate of when this may occur.

Disadvantages

For many advantages that it may have, the halving also has a certain amount of disadvantages, which can diminish the pleasure that users may have on this process. Of these disadvantages, which are mostly for the miners, we’ll explain next:

It decreases the reward to miners

It is the basis of halving, but this can also be a disadvantage. And it is that the miners are the ones who move the crypto-world, and without their support, many of the existing cryptos couldn’t survive. By reducing that reward, many consider that the impulse that they have to put their computing power in mining diminishes or disappears. This would cause a decrease in the miners who work in the verification of Blockchain blocks.

This decrease could have negative consequences for the efficiency and speed of the block chain of a cryptocurrency. And it is without a doubt something to consider. Even so, many consider that the increase of the price and value of the crypto could counteract this situation.

The profitability of mining decreases

Another great consequence for the miners is that, when lowering the reward, this can be lower than the costs that come with mining: electricity, expenses in refrigeration of mining equipment, improvements in these equipments, among others. Since they would earn fewer units of cryptocurrencies for each block, they could consider that it is no longer profitable to continue doing this work. And, if the price of the cryptocurrency does not increase, they could be at a loss.

Increases the difficulty of mining

Another of the great consequences of halving, as we have said, is that it would increase the difficulty that the mining has. Along with the reduction of the miners’ reward, this process of reduction brings with it an increase in the difficulty to solve the mathematical operations necessary to verify the transactions and complete a block in the Blockchain. This can diminish the incentive for new miners to join the Blockchain, and that those who do not have the necessary equipment do not wish to continue mining.

Conclusion

Halving, as a process to improve the profitability of a cryptocurrency, can entail a series of advantages and disadvantages, which must be considered when trying to establish this reduction rule within the code of a cryptocurrency.

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