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Happy Bitcoin Halving! The ~4 year cycle has simultaneously ended and begun again on April 19th, 2024, as Bitcoin hit block 840,000. Now, the amount of new Bitcoin mined (created) per day has been cut in half from ~900 to ~450. This reduction, known as The Halving, is a critical feature of Bitcoin's design to control inflation by limiting the supply over time.
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🤓 Bitcoin Basics 🤓
What is Bitcoin?
Bitcoin is a digital form of currency, known as a cryptocurrency, which operates without the need for a central authority, such as a government or bank. It was introduced in a 2008 white paper by an anonymous person (or group) using the pseudonym Satoshi Nakamoto. The idea was simple yet revolutionary: to create a form of money that is secure, anonymous, and free from central control.
Open your mind and think about this for a second… We have separation of Church and state, right? It’s a good thing. It means that the government cannot manipulate, control, or interfere with your religious practices.
Why do we not have separation of money and state?
That’s what Bitcoin, and crypto in general, was designed to do… become “the people’s money.” This is scary to those in power… and it should be exciting to you.
How Does Bitcoin Work?
Decentralized Network: Bitcoin runs on a technology called blockchain, which is a decentralized ledger of all transactions across a network of computers. This decentralization means no single entity controls the currency, making it resistant to censorship and interference.
Mining: Bitcoin transactions are verified by "miners". These are people or companies that use powerful computers to solve complex mathematical puzzles. By solving these puzzles, they confirm the legitimacy of transactions and record them on the blockchain. In return, miners are rewarded with newly created bitcoins — this process is also how new bitcoins are introduced into the system.
Supply Cap: One of the most crucial features of Bitcoin is its limited supply. There will only ever be 21 million bitcoins in existence. This scarcity is a deliberate design to prevent inflation, which is common in fiat currencies due to their unlimited supply potential.
Transactions and Security
Every transaction made with Bitcoin is recorded on the blockchain. This record includes the sender’s and recipient’s addresses and the amount transferred, ensuring transparency and traceability. Moreover, Bitcoin uses cryptographic techniques that ensure that once transactions are recorded on the blockchain, they cannot be altered or deleted, adding a layer of security unmatched by traditional monetary systems.
Why Use Bitcoin?
Autonomy: Users have full control over their transactions and balances, which can be appealing in economies with unstable currencies or heavy government control over personal finances.
Lower Fees: Bitcoin transactions typically have lower fees compared to traditional online payment mechanisms and can be more appealing for international transactions.
Accessibility: Since all you need to transact with Bitcoin is an internet connection, it is accessible to populations without access to traditional banking systems.
The Appeal of Digital Gold
Bitcoin is often referred to as 'digital gold', not just because of its scarcity but also due to its way of disrupting the financial world just as gold has shaped economies throughout history. Like gold, Bitcoin is seen by some as a store of value during economic instability.
đź’µ BTC vs Fiat Currency
Bitcoin (BTC) stands as the flagship cryptocurrency, often compared to traditional fiat currencies like the USD, EUR, or JPY. Understanding the fundamental differences between Bitcoin and fiat can help clarify why Bitcoin might not just be another financial fad, but a groundbreaking financial technology.
What is Fiat Currency?
Fiat currency is government-issued money that has value primarily because a government maintains its value, or because parties engaging in exchange agree on its value. It does not have intrinsic value; its value is essentially based on trust in the issuing government.
Centralization vs Decentralization
Fiat Currency: Central banks control fiat currency. They can regulate the amount of money in circulation and dictate monetary policy. This control can lead to inflation or deflation by manipulating currency supply.
Bitcoin: Bitcoin is decentralized; no single entity controls it. The network operates on a peer-to-peer basis. Rules are predefined by the network, and changes must be agreed upon by consensus, not dictated from the top down.
Supply - Fixed vs Unlimited
Fiat Currency: There is theoretically no limit to how much fiat currency can be produced. Central banks can decide to print more money as they see fit, which can lead to inflation if not managed carefully.
Bitcoin: The total supply of Bitcoin is capped at 21 million coins, which is expected to be reached around the year 2140. This limited supply helps to preserve the value of Bitcoin over time, similar to scarce resources like gold. Because Bitcoin is decentralized, no one can unilaterally decide that more should be created.
Transaction Process and Speed
Fiat Currency: Transactions can be slow and often require intermediaries like banks, which can delay processing times and add transaction fees.
Bitcoin: Transactions are conducted on a peer-to-peer basis without the need for an intermediary, which can make transactions faster in some cases, though transaction speeds can vary based on network congestion.
Usage and Accessibility
Fiat Currency: Widely accepted and recognized globally, fiat currencies are the standard for daily transactions and are backed by legal frameworks.
Bitcoin: While not as universally accepted for everyday transactions, Bitcoin is rapidly gaining acceptance as a payment method across various vendors and service providers. It's particularly favored for online transactions and by those seeking privacy and minimal regulatory oversight. Additionally, folks all over the globe are turning to Bitcoin as a store of value to hedge against fiat inflation.
Trust and Security
Fiat Currency: The trust in fiat currencies largely comes from the backing of the issuing government. However, this trust can be shaken by economic crises or hyperinflation scenarios.
Bitcoin: Trust in Bitcoin is built on its cryptographic security, decentralized nature, and transparent transaction history on the blockchain.
Innovative Implications
Bitcoin represents a shift towards a more decentralized and democratized financial system. Its integration into the global economy suggests a reevaluation of existing financial systems and points towards the potential for greater innovation in how money is perceived and used.
🌗 The Effects of the Halving 🌗
Miners: The Frontline Warriors
Miners are perhaps the most directly impacted by the Halving, as their primary revenue source—the new Bitcoin created as a block reward—is cut in half overnight.
Cost vs. Reward: Post-Halving, miners earn 50% less for the same amount of work. This reduction can render older or less efficient mining equipment unprofitable unless there's a compensatory increase in Bitcoin's price.
Survival of the Fittest: The Halving often accelerates technological advancement and energy efficiency in mining operations. Miners are pushed to seek cheaper energy sources, innovate in cooling technologies, and upgrade to more efficient mining rigs to stay competitive.
Geographic Shifts: Regions with lower energy costs may see a surge in mining activities as miners relocate to maintain profitability.
Markets: The Economic Barometer
The Halving tends to send ripples across Bitcoin markets, influencing not just prices but also investor sentiment and market dynamics.
Speculative Surges: As the Halving approaches, speculative interest in Bitcoin typically increases, often leading to price volatility. Investors and traders try to anticipate the market's direction, leading to speculative bubbles or corrections.
Supply-Demand Economics: With the rate of new Bitcoin creation halved, any sustained or increased demand can lead to tighter supply, which can push prices up if other market conditions remain favorable.
Long-Term Investment Perspective: Seasoned investors often view the Halving as a cue for Bitcoin’s long-term value proposition, reinforcing its status as 'digital gold' due to its controlled supply.
Check out this chart:
Bitcoin price chart during and after each Bitoin halving
For investors, the Halving represents both opportunity and risk, requiring careful strategy and market analysis.
Risk Management: Investors need to consider the increased volatility around Halving events and adjust their portfolios accordingly.
Long-Term Horizon: Historically, Halvings have been followed by periods of substantial price appreciation. However, past performance is not always indicative of future results, so investors are advised to look at broader market conditions.
Educated Speculation: Understanding the historical impact of Halvings can provide investors with insights into potential market cycles, helping them make more informed decisions.
Your Takeaway
Bitcoin was desgined to be “The People’s Money.” The Bitcoin Halving is a mechanism that is designed to reduce the BTC inflation rate every four years, taking the human element out of the equation. Look at fiat currencies!
Once you give someone the keys to a money printer, it’s very hard to get them to turn it off.
Acquiring bitcoin is hedging your portfolio against the current financial system. Might that be a smart idea…?
🚨 Action Items 🚨
Bitcoin is a hedge against government manipulation of currency.
I guarantee that many of you reading this have all of your assets in the current system. You need to get some money outside. Hedge your bets.
If you’re at all concerned about inflation and government control of currency, you need to:
Dont hesitate any longer. Money is changing… and you do not want to be late.
Reply to this email with a question about crypto! I read and answer every single message.
Thank you for reading Make Crypto Simple.
Sincerely,
Chris Schawel
The content provided in this newsletter is for entertainment purposes only and should not be construed as financial advice. All information, including but not limited to market analysis, price predictions, and investment strategies, is purely speculative in nature. We strongly recommend conducting your own research and consulting with a qualified financial advisor before making any investment decisions. We are not responsible for any losses incurred as a result of the information presented in this newsletter.