Bitcoin Halving 630,000
Yesterday, on the 11th of May, at 22:23h (GMT+3), the Bitcoin had its halving.
It is one of the most important events in the life of Bitcoin, reminding us of many more things than one. Accept it or ignore it, but Bitcoin plays an integral part in the global economy, the financial markets, and society, and has been playing one for over a decade. To commemorate such an important occasion as the Bitcoin halving, it is intriguing to remember the environment that surrounded the creation of Bitcoin and take a moment to reflect on it with the eyes of today.
So what is the ‘Bitcoin halving’?
Over ten years ago, on the 3rd of January 2009, the first Bitcoin block in the Bitcoin blockchain was mined-created. In short, blockchain, as its name suggests, is a chain of blocks, which contain information about transactions. The first block on the Bitcoin blockchain is called the ‘genesis block’, or Block 0. Since the creation of the genesis block, 630,000 blocks have been mined, and this number marks a time when ‘Bitcoin halving’ was set to take place.
The present Bitcoin halving has occurred for the 3rd time since its inception. There is no secret about it: an algorithm, which runs the whole Bitcoin blockchain, is constructed in such a way that the ‘Bitcoin halves’ after every 210,000th block — which is roughly every four years. What the ‘halving’ means, is that Bitcoin miners, who use resources to operate the Bitcoin blockchain and receive Bitcoins as a reward, receive half of the number of Bitcoins that they received before.
Yesterday, after the 630,000th block was mined, a miner received 6.25 Bitcoins for this block, compared to the previous 12.5 Bitcoins. The specific miner that has mined the famous block 630,000 was Antpool of China.
Creation of Bitcoin
Let’s remember the background of the nascence of Bitcoin and under what circumstances it was founded. The creation of Bitcoin is marked by two events: the publishing of the Bitcoin Whitepaper and the creation of the genesis block.
The Bitcoin Whitepaper, entitled ‘Bitcoin: A Peer- to- Peer Electronic Cash System’, was published on October 31, 2008. Those were the times of the financial crisis of 2007- 2008. The days when the stock markets had collapsed, and the United Kingdom (to name but one country) bailed out several banks, including the Royal Bank of Scotland, RBS, and Lloyds TSB. This followed the collapse of a number of American banks- Lehman Brothers, Bear Stearns, Washington Mutual, and Wachovia.
Just days before the publishing of the Bitcoin Whitepaper, the governments of the EU, Japan, and the United States took ‘unprecedented coordinated action’ to stabilize the global economy. The U.K government committed $88 billion to purchase shares in failing banks and $438 billion to guarantee loans. The EU agreed to spend $1.8 trillion to guarantee bank financing and prevent bank shares from falling further.
The banking system was failing; the whole stack of cards was collapsing. In the middle of all this, at the end of October 2008, someone by the pen name of “Satoshi Nakamoto” wrote the Bitcoin Whitepaper, some of which read as follows:
‘Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments.
While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust-based model…
What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party’
A few months later, on January 3, 2009, the first genesis block, producing the first Bitcoins, was mined. There was a message encrypted in the genesis block, which reads:
‘The Times 03/Jan/2009 Chancellor on brink of second bailout for banks’
The message refers to the article published by the Times on January 3, 2009, entitled ‘Chancellor on brink of second bailout for banks’.
Guess what the message encrypted into the 630,000th block, the Bitcoin halving block, was yesterday?
‘NYTimes 09/April/2020 With $2.3 T Injection, Fed’s Plan Far Exceeds 2008 rescue’
Over 4,000 days, or over ten years later, the essence of the headline seems not to have changed that much. The article, to which a message in block 630,000 refers to, announces the U.S. Federal Reserve’s plan to pump $2.3 trillion into the economy through new and expanded programs. According to the article, ‘the measures push the Fed far beyond anything it attempted in the 2008 financial crisis […] to cushion the economy and calm markets, which have included money market interventions and an unlimited bond buying campaign’.
Today, in the face of the Covid-19 crisis, businesses of scale in the U.S. are announcing bankruptcies, while the unemployment in the country topped a whopping 30 million people. Like Lehman Brothers — formerly a household name in Investment Banking — Neiman Marcus, a household name for retail in the U.S., filed for bankruptcy. This followed the bankruptcy of J Crew, while discussions about the troubles of rental giant Hertz and many other companies are ongoing.
Harvard law professor Mark Roe and Ben Iverson, professor at Bringham Young university write that ‘before long, the U.S. could face a trifecta of millions of insolvent consumers, thousands of small- business failures and many bankruptcies of large public firms, with whole industries going broke at the same time.
Did it take Covid-19 to bring the global economy, and especially, the U.S. economy to the brink? Or, were there any ‘signs’ of its rapidly deteriorating health beforehand? Was Covid-19 the final card on a loosely tumbling tower of cards?
What seems abundantly clear, is that presently, nobody is able to comprehend the severity of a crisis that engulfs the entire world. Like in a blockchain, global events are closely tied to each other and swiftly follow one another. While the population will eventually cease to succumb to the Covid-19 virus, but the psychological effects of the lockdown and a persistent fear campaign affecting mental health remain difficult to fully evaluate. At the same time, while it should be a tad laughable that the U.S. has the possibility to issue unlimited extra money to buy up everything, standard economic terms suggest that an increase in money supply tends to lead to inflation, which eventually leads to currency depreciation.
Yesterday, besides the Bitcoin halving event, something else of quite some relevance happened as well. The question of the issuance of digital currency was raised again, only this time it was not by an unknown ‘Satoshi Nakamoto’, but by a Member of the Executive Board of the European Central Bank (ECB), Yves Mersch. In his speech, Mersch said that the ECB has already set up a Central Bank Backed Digital Currency (CBDC) taskforce and that the bank will be ready for whatever the consumer demands, even if this would be retail CBDC. It is clear that the digital world demands digital, updated, and upgraded tools to operate.
Food for thought: 630,000 blocks later, what has changed in the world, in the global economy? Is the situation the same as in 2008, and are only the reasons different? Or is the situation today the same but we find different reasons to blame? What have we, together and individually, contributed to a positive change?
And what will the headline be in another ten years?