The consequences of ‘The Halvening’ of Bitcoin - Jim Duffy comment

I’m no sci-fi movie enthusiast.
Traders, investors and speculators hope that the value will increase, says Duffy. Picture: John Devlin.Traders, investors and speculators hope that the value will increase, says Duffy. Picture: John Devlin.
Traders, investors and speculators hope that the value will increase, says Duffy. Picture: John Devlin.

At least that is what I keep telling myself despite the fact I love Star Wars, Star Trek and an old TV programme called Space 1999. Gosh, Space 1999, where Moonbase Alpha was home to a sorry bunch marooned on a oon that was way out of kilter. And this makes me feel a little melancholic as the times we are living in at present are weird and almost like a science fiction movie – with devastating consequences for many.

But, just as this altered perception of reality ebbs on, so there is another weird phenomenon that 30 years ago would have seemed like something out a nutty scientist’s brain. Bitcoin is about to half again and the investment community is holding its breath.

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Many of you will know that I have dedicated many column inches here to Bitcoin. It is one of those sci-fi cryptocurrency things that is real, but unreal at the same time. While we can all still hold a £1 coin in our hands or go on holiday with a fistful of euros, we cannot feel the fibre of Bitcoin in our mitts.

White van man in the UK and Europe and almost 90 per cent of the building trade love cash, feeling cash, trading in cash and hiding their cash. So, the thought of having no cash to deal with would scare many. Yes, apocalyptic-like, as we move to a digital era. And this is why Bitcoin still feels like the realm of geeks, Snowdens, dark web-sters and speculators. It’s not real – is it?

Yes and no is the answer I would offer. Created by the pseudonymous character called Satoshi Nakamoto, one Bitcoin is today worth $9,000 (£7,230). Whether Nakamoto was an individual or team, what he, she or they left us is a supremely clever piece of code on a secure blockchain built on pure maths.

Interesting prospect

And this purely mathematical but tradable cryptocurrency is about to undergo a change. You see, when its creator put the whole currency together, it was designed to be finite in the number of pieces of code or coins that would ever exist. In the case of Bitcoin that is 21 million. There can never be 22 million – no, not even 21 million and one. And no bank can print more. Hence Bitcoin is so interesting to both purists and investors.

Currently, there are about 18 million Bitcoin floating around the cryptosphere. But we are about to see less and less created right until the final date for minting in 2040. Sometime in May the number of Bitcoins entering circulation every ten minutes will drop by half.

Those in the Bitcoin game who mine or mint coins – essentially solving highly complex mathematical puzzles to create blocks – will be rewarded less for all their efforts. This reward will drop from 12.5 BTC to 6.25 BTC. This takes place every four years like clockwork and has only happened twice before. It creates scarcity and is supposed to push up value.

With fewer Bitcoins being minted, the premise is that each coin (remember, it’s a piece of code on a blockchain) become more significant as it supposedly holds more value. The amount of supply entering the system will quite suddenly shrink, but the demand will, at least in theory, stay the same.

And the traders, investors and speculators hope that the value will then increase. Juxtapose this with the real world, where central banks are in effect printing even more money, that should make it less valuable and we can see why those lovers of Bitcoin are getting excited. It’s plain to see their rationale for what could be.

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But while May could be an interesting month for this particular cryptocurrency, which has climbed by more than 30 per cent in value during the past month, there are many sceptics who believe that it is still a scam and run by some dark organisation deep beneath the bowels of CIA headquarters in Langley, Virginia. To them, Bitcoin is a sham. The fact that it has no central bank alarms them as they have no real control over it.

One thing is for sure. The “Halvening” is taking place this month and the mathematics will play out. It is the sentiment that we can never truly be sure of.

Jim Duffy MBE, Create Special

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