Halving, in basic terms, means breaking into half. For digital assets like cryptocurrencies, all coins in existence or rewards are reduced by half. Many people are still determining how a network can be decentralized, but it works by rewarding miners who provide the physical infrastructure the network needs.
Halving is a feature built into the Litecoin ecosystem that reduces the supply of new coins. Miners’ rewards for mining blocks are cut in half every four years. This can be frustrating for miners, but it helps to control the supply of new coins and increase the value of existing ones.
With fewer coins available, their value can rise, impacting the coin’s market price. Essentially, halving is a way to manage the supply of Litecoin.
If you aren’t sure what Litecoin is and how Litecoin works, Charlie Lee created Litecoin as a decentralized, lighter version of Bitcoin. Lee, who had previously worked at Google and Coinbase, had much experience in the cryptocurrency market space, which he used to develop Litecoin in 2011.
Litecoin is similar to Bitcoin because they share the same features, including Proof-of-Work as a mechanism for work. Litecoin also has a 4-year halving cycle, just like Bitcoin. However, Litecoin has some unique features, such as not having any pre-mine or LTC distributed to developers before its initial coin offering (ICO).
Charlie Lee created Litecoin, intending to avoid the common pumps and dumps in the crypto market.
Also Read: What is an IDO?
Cryptocurrencies like Bitcoin and Litecoin have pre-programmed halving events that occur after a certain number of blocks are mined. Each miner who adds transactions to a block receives a fixed number of coins and transaction fees.
Like Bitcoin’s halving event, the Litecoin network also has a halving event that reduces the number of coins rewarded to miners every four years. However, Litecoin’s blocks are added faster, at around every 2.5 minutes, compared to Bitcoin’s 10 minutes.
Litecoin’s halving event occurs after every 840,000 blocks are mined, which takes roughly four years due to its faster block mining rate. When Litecoin was launched in 2011, miners received 50 LTC for each block mined before two halving events occurred.
The block reward was halved to 25 LTC on the first Litecoin halving date in 2015 and reduced to 12.5 LTC in the second Litecoin halving event in 2019. The upcoming halving event in 2023 will bring the tip down to just a limit of 6.25 LTC.
Conventional FIAT currencies, like the US dollar, can be printed by governments or banks, causing inflation and decreasing their purchasing power over time. In contrast, Litecoin was designed as a deflationary currency, similar to gold.
The idea is that as time goes by, the issuance of Litecoins in circulation will decrease, making them scarcer and potentially increasing their value. This makes Litecoin a potential hedge against inflation, as demand for the currency may increase over time, driving up its price due to market forces.
On the other hand, FIAT currencies like the US dollar experience monetary debasement through inflation as their supply increases over time, leading to a decrease in purchasing power.
A simple example of this is the increase in housing prices over time. By contrast, Litecoin’s deflationary design may make it a more stable store of value over time.
Litecoin, currently ranked 13th with a $6.7 billion market cap, is set to undergo a block reward halving around August 3rd, 2023. This next Litecoin halving event will make it the first significant proof-of-work (PoW) digital currency to undergo a reward halving, apart from the upcoming reduction planned for the Dash crypto project.
Auxiliary Proof-of-Work (PoW), also known as “merged mining,” allows miners to mine for several cryptocurrencies at once without putting in the extra effort. How a blockchain system works in this instance is when a trust link between two blockchain systems is created. This approach enables one system to recognize the other’s contributions as its own. There are clear differences between the Proof-of-Work and Proof-of-Stake.
By submitting their proof-of-work to both networks, miners may improve safety and receive more rewards for successful mining efforts. Scrypt Merged Miners mine Litecoin and Dogecoin as AuxPoW, whereas SHA-256 Merged Miners mine Bitcoin and Namecoin as AuxPoW.
Also Read: What is Decentralized Finance
When a Litecoin halving event occurs, the rewards for mining new blocks are halved. In other words, the rate at which new Litecoins are created and added to the market is also reduced.
The impact of previous Litecoin halving dates is most noticeable in the price of Litecoin, which tends to increase when the supply of LTC is diminished. Conversely, when the supply increases, the market value usually goes down. When it comes down to how to trade Litecoin, we can observe clear patterns in the market price during Litecoin halving events.
After the first halving event, the price of LTC increased, although it wasn’t immediate. While the price of one LTC coin was around $2.99 at the time of the Litecoin halving date, it hovered around the $3.50 to $4.00 range.
In 2018, the price of Litecoin skyrocketed, but this was not due to the LTC halving dates. Instead, it was due to the overall market situation. After a significant crash, the asset’s price started to climb back up in early 2019, only to fall again around the time of the second Litecoin halving.
Within the time between the first and second halving events, there were significant changes in the value of LTC. While it was only a $4 coin during the first halving, its value had soared to over $250 by the time of the second halving due to the changing economic environment. The second halving occurred in August 2019, reducing the miner’s rewards to 12.5 LTC.
The Litecoin halving event process directly impacts miners tasked with mining new coins. When halving occurs, the 50% reduction in mining rewards can significantly impact their earnings. As a result, when it comes to mining Litecoin, miners must find ways to work efficiently during this period in Litecoin’s halving history to maximize their returns.
When block rewards decrease, miner income inevitably declines. Although the first halving had a minor impact on the Litecoin hash rate, causing only a short-term reduction of 15%, the second halving significantly impacted the hash rate.
Miners started mining other cryptocurrencies on a large scale after the second halving until the system reduced the difficulty of Litecoin mining to more acceptable levels.
By 2142, once 84,000,000 Litecoins have been mined, miners will no longer receive Litecoin block rewards for their efforts and must depend on crypto transaction fees for income. Users pay transaction fees to have their transactions processed by the network.
As the block reward decreases, these fees will become increasingly significant. However, it’s hard to know what this will mean for miners. It’s worth noting that Scrypt Miners that mine Litecoin also engage in merged mining with Dogecoin, printing extra money. Now might be the time to invest in Litecoin.
Also Read: What are Gas Fees in Crypto?
Litecoin’s block time is four times faster than Bitcoin’s. Litecoin’s maximum supply is four times higher than Bitcoin’s, meaning only 84 million LTC will exist. Lastly, Litecoin and Bitcoin differ in their mining algorithms, with Bitcoin using SHA-256 and Litecoin using Scrypt.
In reality, the future of Litecoin boils down to market sentiment during the halving, whether the market is bullish or bearish. If the market is bullish and significant assets are rising, the Litecoin halving might give it an additional boost. However, if the market is bearish and most investors sell their coins and tokens, there will likely be minimal price influence.
While halving should theoretically increase an asset’s value, it does not always happen in practice. The BTC price is the most significant catalyst for the LTC price change. Although halving plays a role in determining the price of an asset, other contextual factors, such as supply and demand, also come into play.
As Bitcoin’s market capitalization becomes more contested, Litecoin halving dates may attract more attention. Investors are already looking at Litecoin as a catalyst for future bull markets. In January 2023, Litecoin saw an influx of investment, leading to a rally of over 35% in the early months of the year.
Although Litecoin halving is expected to increase the value of an asset in theory, historical evidence shows that it might not be the case with Litecoin halving. Instead, its relationship with BTC seems to have a more significant impact and should be considered more meaningful than its 4-year halving cycle.
However, the next Litecoin halving date in 2023 brings investors hope for its future prosperity and profits in some of the best Litecoin wallets due to its increased scarcity. Whether this optimism will lead to a broader bull market remains to be seen, but there is plenty of hope for one of the ecosystem’s oldest and most popular assets.