Tomorrow is the day, the reward for the mining of litecoin will be halved. And that can have major consequences for everyone who has litecoin and/or minet.
Reward for securing
The halving is a planned event: every time 840,000 new blocks have been added to the litecoin blockchain, the reward for miners is halved.
A miner bundles transactions in a block and adds them to the blockchain. This makes the chain longer and makes it harder to hack the blockchain. In fact, the task of a miner is to secure the entire blockchain. This costs energy and time, which is why miners are rewarded for their work.
On average, a new block is added to the blockchain every 2.5 minutes. Suppose there are 500,000 miners, then only one of these miners may add such a block and that is the only one that is rewarded.
Reward halves
Today a miner still gets 25 litecoin (of around 90 euros each), but from tomorrow it will only be 12.5 LTC. In addition to energy costs, miners also have costs for, for example, renting cooling equipment, premises and depreciation on their mining equipment. Also, these are (often) not philanthropic institutions, so they also want to get rid of it. A large part of that reward is therefore immediately sold on the market by the miner.
These coins end up on the market and that ensures that there is a stable supply to meet the demand. Now that supply is halved, while the demand is not halved. Many analysts and traders therefore speculate that the price therefore rises before or after a halving. You can also follow this on our course page:
Will the litecoin exchange rate rise?
Opinions are divided as to how large that rise will be. Nobody can predict a possible rise (or fall) with 100 percent certainty, but there are good arguments why the price does not go straight through the roof.
One is that the price of litecoin has risen enormously in the last six months. It seems that the increase in value due to the halving has already been priced in by traders. Many traders are aware of the halving and have already speculated on it in the course of 2019. Below you can see this from a constant growth in value, until 23 June.
On 1 January 2019, litecoin was worth EUR 25.98. The price had already increased by 100 percent by the end of the first quarter. The rest of the market then had to get going, even bitcoin only really started to move from 1 April.
But litecoin went its own way. At the end of the second quarter, on July 1, the value was higher than 100 euros. The litecoin has gone four times within six months!
What do you expect We are now literally on the eve of the litecoin halving. Is this a good time to buy litecoin?
But what does this mean for the security of the Litecoin network?
With their work, miners ensure that the network is well protected. But if the reward decreases by 50 percent, is it likely that miners use their equipment to mine other coins? As such, miners have to compensate for their costs.
But those costs are in tough euros (or dollars). And as you can see in the graph above, the value has already increased considerably this year. Chances are that minen after the halving is still lucrative. Binance has also investigated this. Four years ago the last halving was at litecoin, when the hashrate (computer power of all miners combined) fell by 15 percent.
Opposite what the central banks do
Last week it was announced that the American Central Bank, the FED, would lower interest rates by 0.25 percentage point. The European Central Bank is also expected to follow in September. This means that taking out loans becomes cheaper, so there is more money in circulation. That can cause inflation. The great thing about cryptocurrencys such as bitcoin and litecoin is that inflation is predictable and can also be included in the value. Charlie Lee, the man who started litecoin, said about this:
I’m announcing today that in 4 days, I will be cutting Litecoin mining rewards in half for the first time in 4 years. This should help prevent the possibility of a cryptocurrency downturn. ?
And I will cut it in half again in 2023! ? https://t.co/YmUIHx5fLi
– Charlie Lee [LTC⚡] (@SatoshiLite) August 1, 2019
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