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As far as Bitcoin milestones go, Saturday, 9 July at 17:58 (GMT) was a pretty monumental moment for the mining community in particular, and the general market at large. So great was this moment that live countdown celebratory parties were held across the globe and an overall sense of merriment was palpable. What could be so exciting, you may ask?
As the 420,000th block was sealed, Bitcoin’s predetermined algorithm change kicked in for the second time and the mining reward was halved from 25 to 12.5 bitcoin for each block successfully added to the blockchain. This is a hard-coded rule to ensure a deflationary supply into circulation (a unique currency characteristic), with the first occurrence on 28th November 2012. While this briefly outlines the technical occurrence, it doesn’t provide much insight into why this is was celebrated as such a grand event.
Economics 101 teaches us about the inherent relationship between supply, demand and price. The law of supply dictates that as supply diminishes, ceteris parabus (everything being equal), price will increase. An important aspect here is the assumption that other inputs remain the same - most especially demand.
If we examine the demand for bitcoin over the last few months, even a year or two, demand has followed a positive trend. There are several fundamental factors driving the escalating interest and adoption of bitcoin. Most notably is an ever-growing lack of confidence in the traditional banking system, fuelled by widespread unrest and uncertainty in governments, and subsequently central banks.
Consider the impacts of the debt crisis in Greece, the political and economic turmoil in Latin America, the concerning fiscal policy moves from China or, most recently, our very own Brexit. These situations, and the subsequent financial repercussions, force investors to seek alternatives as a means to hedge their assets.
And when fiat currency is under threat, when monetary policies dictate how, when and where you’re able to interact with your money, or when political agendas have a direct impact on the value of your balance, Bitcoin has proven to be favourable to preserve wealth and maintain growth.
In the lead up to the miner’s reward halving, we saw a strong rally in the bitcoin price and while we fully expected this surge, it shouldn’t be forgotten that the underlying forces of demand weren’t purely about the anticipated halving. It’s my opinion that the demand for bitcoin will continue to grow in the wake of global economics slowly but surely eroding at private individuals’ wealth.
This, combined with the now constricted supply, will provide impetus for long-term growth for bitcoin, and a steady increase in price as a result, which is naturally great news for investors, but it’s not as a result of the halving.
While much fanfare was made about the halving, I sat quietly and celebrated not the moment, but the significance of the moment. For me it was merely another step in Bitcoin’s rite of passage to mainstream recognition. Recognition as an innovative technology fulfilling the vision of a decentralised financial system. Recognition that despite heavy scepticism and claims of ‘being dead’ numerous times over the last few years, bitcoin remains very much alive. Recognition that despite initial volatility and ongoing attempts by media to sensationalise Bitcoin in negative light - here we sit - more than 8 years on from inception - on the other side of the second supply halving with a strong market cap, healthy and growing price, and a thriving network. And it’s my view that can only get better and better as people continue to find the security in bitcoin that traditional financial frameworks - as tools of power for politics - simply can’t provide.
So here’s to you, Bitcoin. Cheers to many more milestones!