Recent shining performance of Litecoin (LTC), could be linked with the mining reward halving due on August 6 in this year.
The entire process is targeted at curbing inflation by reducing the coins paid out to mine on LTC’s blockchain by half. Thus, after 6 August, miners can obtain 12.5 coins for every mined block down 50% from the current reward of 25 coins.
According to the data provider Coin Metrics, a halving of the block rewards will test the possible effects of the reductions, which are expected from the behavior of the extraction machine as in the cryptocurrency market cycle.
In this sense, Coin Metrics researchers warned in an analysis published on the blog of its company that once the refined currency is reduced by half, the inefficient mining machine can be eliminated on August 5.
They added that this fact is due to the fact that the rewards of each mine are reduced by half and profitability is affected immediately. This is the result of the fall in income.
Since mining machines operate like large companies and face the recurring operating costs of their currency, mainly electricity costs, the mining machine must periodically sell some of the incentives to pay the costs. Since mining is a completely competitive industry and profits are constantly looking for a zero stable economic surplus, the yields of most mining areas must be sold in legal tender.
In this way, once the reduction occurs, the operator will have to continue spending the same amount of energy to extract less cryptocurrency. This reduces their profit margins and makes it difficult to maintain a balance between income and production costs. Such a fact can damage some mining machines. They will not be able to maintain a balance point, so they can leave the network.
In this sense, the researchers explained that the sales pressure of mining machines is very high. For example, they mentioned that Litecoin’s mining revenues in 2018 totaled almost $ 561 million. Therefore, it is estimated that the annual inflation rate to date is 8% and will be reduced by half 4.4%.
They said: “This means that the sales pressure caused by the mining machine has decreased considerably.”
Possible impact on mining power:
The report also believes that halving the currency of the document will increase the overall efficiency and profitability of the miners who remain in the network. This will happen because even if the mining machine starts to reduce sales, they tend to retain more profits. This is the result of the exit of some operators.
As for the difficulty of mining, there is no clear prediction. It is worth mentioning that after the first reduction of Litecoin (LTC) rewards, the difficulty has shown flat or negative growth. This “finally led to the surrender of mining in mid-2016”.
However, researchers believe that given the current development of mining technology, this situation may not be repeated in this case.
Regarding this problem, it is worth noting that LTC has documented the continued growth of the mining difficulty, which has reached record levels in recent months.
Its price also shows an upward trend. Both facts are related to the usual pattern followed by the cryptocurrency before the half. In this sense, the generally observed market cycle means the price increase before the event and the decrease in value after the reward is reduced.
However, Coin Metrics said it is still too early to reach a clear conclusion. Therefore, many predictable effects should not be taken for granted. In this sense, we will have to wait a few days before experts can analyze in detail the impact of reducing the rewards in the operation of cryptocurrencies.