Last week on Saturday, April 20, a group of individuals known as miners who are enthusiastic and obsessed about a digital currency called bitcoin gathered for a major event called bitcoin halving.
Just like geological miners who mine the earth to discover minerals, bitcoin miners must work to discover something hidden. They solve complex math formulas to unveil new bitcoins.
Whoever solves the formula first gets a bunch of bitcoins as a prize. It is why miners try to compete in the race by building the most powerful computer networks they can, and that happens during bitcoin halving.
Bitcoin halving occurs every four years. It is not a physical event. Think of it as a moment when miners sit on their computers to solve complex formulas in anticipation of winning more bitcoins.
"There will ever be only 21 million bitcoins. Currently, a small more than 19 million have been mined, leaving just under 2 million left to be created," Kayode Babarinde, Executive Director of the Africa Blockchain Institute, explained.
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How it happens
The halving effectively reduces the supply of new bitcoins. That presumably should lead to higher prices. It is the principle that when fewer bitcoins are mined, bitcoin becomes more valuable.
"During a halving event, the number of new bitcoins generated per block gets divided by two, effectively reducing the rate at which new bitcoins are created. This mechanism is built into the bitcoin protocol as a way to control the inflation rate and ensure the scarcity of bitcoins over time," Babarinde said.
The first halving rewarded miners 50 bitcoins, then it was halved to 25 bitcoins, further halved to 12.5 bitcoins, then 6.25 bitcoins. Last week's event saw reward fall to 3.125 bitcoins.
The halving policy was written into bitcoin's mining algorithm aimed to counteract inflation by maintaining scarcity, the reduction in the pace of bitcoin issuance means that the price will increase if demand remains the same.
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What happens to bitcoin price?
Norbert Haguma, Regional Ambassador at Global Blockchain Business Council, told The New Times that bitcoin halving significantly impacts the economics of bitcoin, the largest digital currency in the world.
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"This decrease in supply generation often creates expectations of increased prices due to reduced supply, while many anticipate price increases," he said.
"A sentiment backed by historical trends, future outcomes can vary greatly based on external economic conditions and market dynamics," Haguma noted.
He added, "investors should consider these factors and the potential for increased transaction fees and modified miner behavior when assessing bitcoin as an investment, especially around halving events."
Despite the growing popularity of bitcoin across the world, The Central Bank of Rwanda does not control the system, leaving investors vulnerable to the potential risks and uncertainties.
While bitcoin has gained popularity across the world, it remains unregulated in many countries, including in Rwanda due to the nature of its fluctuation and lack of control that central bank institutions have on it.
Central Bank Governor John Rwangombwa indicated recently that their stance has not yet changed saying that they advise Rwandans to refrain from decentralized cryptocurrencies as they are not accepted in the financial system and not supervised by any entity.
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However, he said that it is not illegal for those who buy and sell externally in other jurisdictions.
"We have been advising people to refrain from it, there is no where you can legally trade with it or forex. But if you are able to buy and sell it externally, that is up to you," he said.
Rwangombwa highlighted that among the reasons they have been calling for caution include the uncertainties present as well as vulnerability to fraud.
"There are also a lot of uncertainties and at times fraud that lead us to ask people to exercise caution as when getting involved. While there is no major issue that we have seen or noted for us to start fighting crypto currency, we call on Rwandans to refrain from them," he noted.
