With just one day to go until Litecoin'due south (LTC) next halving event, Cointelegraph sets out all yous need to know well-nigh the cryptocurrency's reduction in block rewards. In spite of their reputation for creating price hikes, the atomic number 82 upwards to the halving has witnessed a 25 pct pass up in valuation over the last month.

What is halving?

Halving is a process that occurs when the mining reward for a cryptocurrency is reduced by 50%. Miners receive crypto rewards for solving problems that create each new block on a given blockchain. The rewards differ for each cryptocurrency. With Litecoin, miners are currently awarded 25 coins per block. After Aug. five, miners will merely receive 12.5 Litecoins per cake.

Litecoin rewards halve every 840,000 blocks, a process that occurs every four years. The block speed for Litecoin is roughly 2.5 minutes, with around 576 blocks generated per day. One of the key factors to accept into account is that, according to the coding behind cryptocurrencies such as Bitcoin (BTC) and Litecoin, only a sure amount will always be mined. This distinct characteristic sets information technology apart from fiat currencies, which can theoretically be printed infinitely.

Although information technology's hard to say when the last Litecoins will be mined, the Litecoin Foundation estimates that information technology will be around 2142, when the maximum of 84 million Litecoins will be reached. As of press fourth dimension, in that location are 62,983,450 Litecoins in circulation, representing 74.93% of all Litecoins that volition e'er be mined. This leaves roughly 21 meg coins left to be mined up until 2142. Comparatively, it's estimated that the final few Bitcoins (BTC) volition be mined effectually 2140.

Halvings are closely followed past investors, as the consistent reduction in mining rewards affects the profitability. Appropriately, this has a knock-on issue on the price. For investors, this can be a mixed bag. According to the theory of supply and demand, halvings should drive up the toll of the cryptocurrency. Equally they receive fewer coins per block solved, miners finish producing them until the work once again becomes assisting. As fewer coins enter circulation, the price consequently goes up, as demand — in theory — will overtake the supply. Although this sounds similar a certain-fire win for investors, halvings tin bring about even greater instability to an already volatile marketplace.

Previous halvings have stoked investor interest, and the upcoming Litecoin upshot is no exception. According to Google Trends, searches for "Litecoin halving" peaked between June ix and June 15, although information shows that this trend is in one case again increasing.

Searches for "Bitcoin halving" on Google are typically more numerous than entries for Litecoin, although this trend has reversed as of July thirty.

Google search volume for Litecoin and Bitcoin halving

What could happen?

In the time leading upward to the halving, miners ramp up operations to maximize their returns until the whole process becomes unprofitable. Miners demand to invest in powerful, specialized equipment to take on the computing challenges required for creating blocks. As the difficulty of mining blocks rises, so do electricity costs. Mining is no longer a game for private hobbyists, with fifty-fifty the biggest mining farms struggling to remain assisting during the so-chosen crypto winter of 2022. Mining is now a large business, and businesses need to brand a profit. And then, when profitability falls, activities tend to cease.

The fact that miners will feel the heat after the halving is no secret, with Litecoin creator Charlie Lee predicting that many will shut up shop after Aug v. Lee told Australian crypto news site Mickey that halving the cake rewards by 50% always has an impact on the Litecoin mining ecosystem:

"When the mining rewards get cut in one-half, some miners will not be profitable and they will shut off their auto. If a big per centum does that, then blocks will slow down for some fourth dimension. For litecoin it's iii and a half days before the next alter, and so possibly like seven days of slower blocks, and then later that, the difficulty will readjust and everything volition be fine."

Despite the commonly accepted theory that a subtract in supply results in a corresponding increment in need, Lee suggested that market sentiment as well plays a role in ramping up the toll:

"In terms of the toll, the halvening should be priced in considering everyone knows well-nigh it since the first. Just the thing is people kind of expect the price to go upwardly. So a lot of people are buying in considering they look the price to get up and that's kind of a self-fulfilling prophecy. So, considering they're ownership in, the cost does really go up."

Later on Litecoin's 2022 halving, the coin peaked in July of that year earlier losing most l% of its value by the time of the reward reduction, culminating in a decrease of 75% in the aftermath, Mickey reports. Naeem Aslam, chief market place annotator at ThinkMarketsFX, told Cointelegraph via electronic mail that reducing block rewards for miners is an effective filtering process and agreed that the effect on the price is usually positive:

"Reducing the incentive for miners is good for LTC because only serious people will remain in the space. As for the price activeness, it is difficult and it depends a lot on the sentiment but unremarkably this kind of activity is positive for the price."

If the price bombs post-obit the halving, the network hash rate volition tail off as mining begins to shut down, leaving only the largest mining farms operational. Once the hash rate drops below a certain indicate, the mining difficulty will suit itself and smaller miners may be able to begin mining one time again.

Supply and demand: Experts weigh in

Although halving events are widely considered to result in a cost hike for the given cryptocurrency, market experts do not foresee any dramatic changes in valuation. Mati Greenspan, a senior market analyst at eToro, told Cointelegraph that halving events are unremarkably priced in before they actually happen:

"It seems to exist the case here as well. Litecoin has outperformed the residual of the market during this yr's rally and some say that it was a root cause of the up momentum in the start half of this year. Information technology'southward difficult to say how or even if the price volition react to the consequence in the curt term. In the long term, reduced supply supports higher prices all else being equal."

Renowned crypto trader and technical annotator Crypto Rand also agreed in e-mail conversations with Cointelegraph that the halving event has already been priced in:

"I don't call back the halving event volition have much touch on on Litecoin toll, it's already priced in since one month I would say. LTC is looking pretty solid here. Information technology just bankrupt up the local downtrend channel after bouncing on the cardinal $88 range support. If the downtrend of book finally comes to an finish I'm expecting a rise on the toll dorsum to $105-$110. Right now looks like a solid selection among the residuum of big caps."

For Aslam, those trying to spring on the halving gravy train are already too late:

"The well-nigh important cistron to recollect is that these kind of planned events are already fully priced in and traders have already positioned themselves for this. Running upwardly to the event, it is not usually wise to participate in that motion because y'all are already also late for the political party. Therefore, smart money always buy the rumour and sell the news."

Greenspan predicts that there won't be many surprises in mining activeness, due in part to Litecoin'south scrypt algorithm:

"Litecoin's scrypt algorithm is pretty unique and so the hardware used to mine it is not easily adjustable to mining other tokens. Therefore it doesn't have quite the same of contest over hashrate that some of the other cons have. My feeling is that LTC miners take had ample fourth dimension to gear up for the halving so we shouldn't encounter whatever major changes."

When asked about what investors holding LTC should exist doing, Greenspan had advice:

"Holding. But more importantly spending. Litecoin'due south value proffer specifically involves being a more than durable token for making payments. The more than people utilize information technology for this purpose, the stronger the network gets."

Some members of the crypto community are commenting that the Litecoin halving can be viewed every bit a exam run for the upcoming midyear 2022 BTC halving and that we can consequently expect similar results. For Greenspan, the comparison is sound, although he warned that results will not be identical:

"The market has matured a lot since the last Bitcoin and Litecoin halvings. Though we couldn't possibly wait a mirror reaction, the LTC halving should requite u.s. some indication of what to expect when BTC does the same next year."

Crypto Rand is non so sure, withal, stating that investor understanding and even awareness of Litecoin juxtaposed to Bitcoin is incomparable:

"I don't think LTC halving tin can piece of work as exam for Bitcoin, I would say 95% of the traders/investors are not aware of the halving on LTC or they don't know what means. The coverage for BTC information technology's and will exist a fully mainstream event, everyone volition be aware of information technology."

Strix Leviathan says halving profits are a myth

A blog post published on July 21 by institutional-grade algorithmic investment management platform Strix Leviathan reported that cryptocurrencies do non outperform the market place in the months leading up to and following cake reward reductions.

The report found that the supply and demand theory, while "certainly feasible as a logical theory," does not consequence in a rapid increase in price. Per the report, Strix Leviathan analysts plant that LTC outperformed the market twice prior to a reduction in block rewards, yet vicious to the bottom 25% of the marketplace in the ensuing six-month period. The report also postulates that the functioning of a crypto nugget both in and out of halving periods are more or less the same:

"What nosotros find is that the return distribution of an nugget's halving periods versus the return distribution outside of its halving periods reveals that they are statistically the same at a 99% conviction level. In other words, nosotros did not detect prove that a halving result results in abnormal pricing action and we are dealing with a coexisting illusion. It appears more likely that the return beliefs before, during, and later on a halving coincides more with increasing levels of speculation than with an underlying shift in sell side pressure."

Merged mining could mitigate block reward reductions

A study published by Binance Research, an arm of major crypto exchange Binance, found that the impact of halvings for both BTC and LTC miners could be mitigated past merged mining. Binance researchers analyzed Charlie Lee's prediction that many miners would have to halt operations and looked into how merged mining could aid keep miners on-lath even afterwards rewards accept been reduced.

Merged mining uses the work done on a parent blockchain and spreads it beyond other smaller "child blockchains" by using auxiliary proof-of-work (AuxPoW). The three about prominent examples of merged mining are the Litecoin-merged Namecoin (NMC), Bitcoin-merged Dogecoin (DOGE) and Myriadcoin (XMY), a cryptocurrency merged with both BTC and LTC.

The report theorized that merged mining could assistance mitigate the touch of reward reductions by future cake rewards scheduled for both Litecoin and Bitcoin. Binance researchers also reported that smaller bondage could comprise AuxPoW in futurity to support greater network security and reduce the demand for an independent mining operation. The written report did, nevertheless, find some potential shortcomings. Researchers said that miners may non plow to merged mining due to the risk of operational costs when supporting child blockchains and potential declines in the market toll.

The report cites Dogecoin as the about successful examples of merged mining, which adopted the model in Baronial 2022. Afterward the switch, the coin's mining hash rate skyrocketed i,500%. The report also establish that, as of July 2022, 90% of Dogecoin's total hash charge per unit is sourced from Litecoin mining pools.