One more day until the next event of the Litecoin Half (LTC). Cointelegraph shows you everything you need to know about reducing cryptocurrency block rewards. Despite the call for higher prices, the halving has dropped 25% over the past month.
What's a half?
Halving is a process that occurs when the crying currency extraction reward is reduced by 50%. Minors receive cryptographic rewards for solving a mathematical problem that will generate each new block in a given block chain. Rewards vary for each cryptocurrency. For Litcoin, the reward is currently 50 pieces per block. After August 5th, Minter will only receive 25 Litecoins per block.
Rewards in litecoins halve every 840,000 blocks, a process that takes place every four years. The speed of the blocks for Litecoin is about 2.5 minutes, generating about 576 blocks a day. One of the key factors to consider is that, depending on the code behind crypto-currencies such as Bitcoin (BTC) and Litecoin, only a certain amount can be produced. This feature distinguishes it from Fiat currencies, which can theoretically be printed indefinitely.
Although it is difficult to say when the last Litecoin will be exploited, the Litecoin Foundation estimates that it will be in 2142 when the maximum of 84 million Litecoins will be reached. There are currently 62,983,450 Litecoins in circulation. This equates to 74.93% of all litecoins that can be mined. In 2142, there are about 21 million pieces left. Compared to that, it is estimated that the last bitcoins (BTC) are reduced by 2140.
Investors are keeping a close watch on halving, as the resulting reduction in premiums will affect profitability. As a result, it affects the price. For investors, this can have mixed consequences. According to the theory of supply and demand, halving should raise the price of cryptocurrency. As they receive fewer pieces per dissolved block, the miners stop production until the work becomes profitable again. The fewer coins in circulation, the higher the price, because demand theoretically exceeds supply. Although this may seem like a safe return for investors, cutting it in half can lead to even greater instability in an already volatile market.
The previous halving has sparked investor interest and the upcoming Litecoin event is no exception. According to Google Trends, research on "halving litecoin" peaked between 9 and 15 June, although data shows that this trend continues to increase.
The search for "Bitcoin halving" on Google is generally wider than for Litecoin, although this trend reversed on July 30th.
What could happen?
While waiting to halve, miners increase their yields until the whole process becomes unprofitable. Miners must invest in high-performance and specialized equipment to handle the IT tasks needed to build blocks. As the decomposition of blocks increases, the cost of electricity increases. Mining is not a game or a hobby. Even the largest mining companies have struggled to remain profitable during the so-called Crypto Winter 2018. Mining is now a big business and companies must make a profit. When profitability declines, activities tend to be interrupted.
The fact that miners feel the heat after being divided by two is not a secret. The founder of Litecoin, Charlie Lee, predicts that many will have to close their businesses after August 5th. Lee told the Australian Mickey krypton information website that halving the rewards in blocks would have an impact on Litecoin's mining ecosystem.
"If the premiums are cut in half, some companies are not profitable and turn off their machine.If a high percentage does, the blocks slow down for a while.For Litecoin, there remains three and a half days until the next change, so maybe seven days with slower blocks, then the complexity will be rebalanced and everything will be fine. "
Despite the generally accepted theory that a drop in supply leads to a corresponding increase in demand, Lee suggested that market sentiment also plays a role in raising the price:
"In terms of price, the halving should lead to a change of course, since everyone knows it from the beginning, but people expect the price to rise. they expect the price to rise, and it's a self-fulfilling prophecy.The price actually increases because they shop. "
After halving litecoin in 2015, the coin reached its peak in July of this year before losing nearly 50% of its value at the time of the reduction in the reward, which resulted in a 75% drop, according to Mickey. Naeem Aslam, Chief Market Analyst at ThinkMarketsFX, e-mailed Cointelegraph that reducing bulk rewards for miners was an effective filtering process, and agreed that the price impact is generally positive :
"Reducing incentives for minors is a good thing for LTCs because there are only reputable people left." The price action is difficult and depends heavily on mood, but in general this action has a positive effect on the price. "
If bomb prices fall after being cut in half, the network hash rate decreases at the start of mining and only the largest mining companies remain operational. Once the hash rate falls below a certain threshold, the difficulty of extraction arises and smaller miners can resume mining.
Supply and demand: the experts express themselves
Although it is generally accepted that halving leads to a price increase for the respective cryptocurrency, market experts do not see any significant valuation changes. Mati Greenspan, a leading market analyst at eToro, told Cointelegraph that halving is usually associated with price changes before they actually happen:
"This seems to be the case here as well.Liquecoin has outperformed the rest of the market in this year's hike, and some say that this has been behind the upward momentum seen in the first half of this year. It's hard to say how or if the price will react to the event in the short term.In the long run, a reduced supply will result in higher prices if everyone is the same. "
Crypto Rand, a renowned technical analyst and technical analyst, also agreed during an email interview with Cointelegraph that the price of the halving event had already been corrected:
"I do not think the halving will have a big impact on the price in Litecoin, you can see the effects for a month, I would say, LTC seems pretty strong, it just broke the local channel of the downtrend. after relying on the important support of $ 88 gap. When the downward trend in volume will finally end, I expect the price will increase to $ 105 to $ 110. looks like a solid option among the rest of the best dogs. "
For Aslam, those who are still trying to get on the train are already late:
"The most important thing to remember is that these types of planned events are already fully taken into account and that dealers have already positioned themselves for them.It is not usually advisable to participate now because you are already late for the holiday.This is why smart money always buys the rumor and sells the new one. "
Greenspan predicts that the extraction activities will not be too surprising, thanks in part to the Litecoin encryption algorithm:
"The Litecoin encryption algorithm is quite unique, so the hardware used for the mine can not be easily customized to exploit other tokens. Therefore, it is not quite the same competition for hashrate than some of the other coins.I think miners in long-term care facilities have had plenty of time to prepare for the halving, so we should not witness any major changes. "
When asked what investors should do with LTC, Greenspan gave the following advice:
But above all, spend. The value proposition of Litecoin is in particular to be a more sustainable means of payment, the more people use it for this purpose, the more the network becomes solid. "
Some members of the cryptographic community say that Litecoin Halving can be considered a test of half of BTC mid-2020, so we can expect similar results. For Greenspan, the comparison is good, but he warned that the results would not be the same:
"The market has matured since the last half of Bitcoin and Litecoin.Although we could not expect a mirror reaction, the halving of LTC should give us an indication of what to expect if BTC would do the same next year. "
Crypto Rand is, however, not so sure and says that understanding and even investor knowledge regarding Litecoin and Bitcoin are unmatched:
"I do not think LTC's halving can serve as a test for Bitcoin, I would say that 95% of traders / investors do not know that LTC has halved or do not know what that means." CTB is and remains a mainstream event that everyone will know. "
Strix Leviathan says halving profits is a myth
A blog post published on July 21 by the algorithmic investment management platform Strix Leviathan for institutional investors revealed that cryptocurrencies were not ahead of the market in the months before and after the cuts global premiums.
The report states that, although the theory of supply and demand is "quite feasible as a logical theory, it does not lead to a rapid increase in prices." According to the report, analysts at Strix Leviathan noted that LTC had outperformed the market twice before reducing overall premiums and had dropped to the bottom 25% of the market over the next six months.The report also postulates that the performance of a cryptographic asset in periods of division and division is more or less the same:
"We note that the yield distribution of halving periods of an asset versus yield distribution outside its halving periods is statistically equal to a 99% confidence level." In other words, we have found no evidence of an event dividing by two leading to abnormal price practices, and we are dealing with a heavy illusion: it is more likely that the behavior of returns before, during, and after halving is more a match for growing speculation than a change in the pressure on sales. "
Merging mining projects could reduce the reduction of rewards as a block
A report from Binance Research, a branch of the main Binance Encryption Exchange, revealed that the effects of halving for BTC and LTC miners could be mitigated by a mining merger. Binance researchers analyzed Charlie Lee's prediction that many miners would be forced to close their doors and looked at how mining companies could help keep miners on board even after a reduction in rewards.
The merged mining company uses a parent block chain and distributes it to other smaller subordinate block chains with the help of additional work proof (AuxPoW). The three most notable examples of merged mining are Namecoin (NMC) melted in Litecoin, Dogecoin melted into Bitcoin (DOGE) and Myriadcoin (XMY) fused to BTC and LTC.
The report hypothesized that the merger of mining companies could help reduce the impact of rewards cuts from future block rewards for Litecoin and Bitcoin. The Binance researchers also indicated that small chains could integrate AuxPoW in the future in order to increase network security and reduce the need for independent mining operations. However, the report revealed some potential gaps. The researchers said the miners could not consider merging their mining operations because of the risk of operating costs inherent in lower chain blocks and potential decreases in market prices.
The report cites Dogecoin as the most successful example of combined extraction, which the model adopted in August 2014. After the transition, the hash rate of parts increased by 1,500%. The report also revealed that in July 2019, 90% of Dogecoin's total hash rate came from the Litecoin mining deposits.