By The much awaited Litecoin halving is all set for August 5th , are you prepared for it? Do you know what a halving is or how it works? Well sit back and relax, we’re going to take you through all the basics that you need to know about this event.
What is a halving?
Basically, this is a process that occurs when the mining reward for any cryptocurrency is reduced to half. We all know how miners receive rewards for solving the complex mathematical problems that end up creating a block in the blockchain; the rewards they get vary from one cryptocurrency to the other. For Litecoin miners that Is currently 25 coins per block that is mined. So after the halving, miners will now be rewarded 12.5 coins for every block they mine.
For Litecoin, the halving occurs every 840,000 blocks and this occurs every four years. Just like Bitcoin, Litecoin will also be produced in a finite quantity. Yes, only 84 million Litecoin will ever be produced. With a block speed of 2.5 minutes, the final Litecoin block is estimated to be mined around 2142. The sole reason a halving occurs is to keep the inflation rate in control. With the halving, the inflation rate of a cryptocurrency is also slashed to half.
What happens prior to a halving?
Every investor that knows the basics of cryptocurrencies keep an eye out for the halving. The reduction in mining rewards greatly affects the price of a token. Prior to a halving event, miners try to maximize their returns before the process turns unprofitable. With the increase in mining difficulty, the cost of electricity also increases. For Litecoin the first halving saw a 100 percent gain. Back then Litecoin traded at $30, after the halving the price jumped to a high of $61. Based on the theory of supply and demand, halvings should basically drive the price up as miners often stop producing them because they receive fewer rewards. As fewer coins enter the circulation, the price goes up as demand is supposed to overtake supply. This might sound like a great investment opportunity, but this is not the case sometimes.
Many a times, halvings can bring about a lot of instability to a market that is already famous for its volatility. Previously, we’ve seen that halvings tend to fuel investor interest and as of this year searches of “Litecoin halving” has at some point overtaken queries related to “Bitcoin halving”.
Mati Greenspan, a senior market analyst at eToro told Cointelegraph that halving events are usually priced in before they actually happen. He said:
“It seems to be the case here as well. Litecoin has outperformed the rest of the market during this year’s rally and some say that it was a root cause of the upward momentum in the first half of this year. It’s difficult to say how or even if the price will react to the event in the short term. In the long term, reduced supply supports higher prices all else being equal.”
Although, something we might see prior to the halving is the reduction in the number of miners. With the block reward being sliced in half and an increase in block difficulty, miners might move on to some other blockchains that are a better option to profit from. However what happens next is yet to be seen.
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