Bitcoin enters its fourth halving as miners’ block subsidy rewards fall to 3.125 BTC.

Bitcoin BTC

-1.79%
‘s latest Now that the halving is complete, miners’ block subsidy rewards will be reduced from 6.25 BTC to 3.125 BTC.

Bitcoin’s fourth halving occurred at block height 840,000, ushering in a new era for the network. The hopes of many in the community that the subsidy would be halved on the memorable date of April 20 did not materialize in the US market, as miners appeared to increase the hash rate on the network before the subsidy ran out.

Bitcoin halving is programmed to occur automatically every 210,000 blocks, or approximately every four years. When a halving event occurs, miners receive 50% less Bitcoin as a subsidy reward for every block of transactions they mine and add to the blockchain. However, they continue to earn additional transaction fee rewards for each block mined normally.

Before today, there have been three halving events in Bitcoin history. Block subsidy inflation was reduced from 50 BTC to 25 BTC in 2012, then to 12.5 BTC in 2016, and then to 6.25 BTC at the last halving on May 11, 2020.

This halving means that on average miners will produce a total of about 450 BTC per day compared to 900 BTC previously. In the long run, there will only be 21 million Bitcoins.

The halving event will continue until the last Bitcoin is expected to be mined around 2140. After that, miners earn only from transaction fees.

Industry reaction – ‘Miners will win the bet’

Today’s halving, sometimes referred to as “the halving,” is perhaps the most important for several reasons, according to Thomas Perfumo, head of strategy at Kraken.

“First, after April 2024, nearly 95% of all Bitcoin that will ever exist will have been mined. Moreover, the annual growth rate of Bitcoin supply each year will soon fall below 1% for the first time,” he said.

The rise in Bitcoin prices this year has increased miner revenue, but the extent to which the halving will impact less efficient mining operations and the overall network metrics of reduced subsidies are not yet known.

Binance CEO Richard Teng told The Block that the reduction in subsidy rewards could force some miners out of the market, temporarily impacting network processing power before the next difficulty adjustment.

“The Bitcoin network has shown resilience in the face of such challenges in the past. Advances in mining technologies and strategies and potential adjustments in mining difficulty may mitigate the impact of reduced miner participation,” Teng said. “Also, some miners may switch to altcoin mining or explore alternative revenue streams within the cryptocurrency space, which could help maintain balance across the entire mining ecosystem.”

“Some miners are expected to come under greater pressure due to reduced block rewards, which could force less efficient companies out of the market. This could lead to centralization of mining power among larger, financially strong companies,” said Jag Kooner, Head of Derivatives at Bitfinex.

“But these changes also provide opportunities for innovation and improved efficiency within the sector. Miners can explore new regions with cheaper energy sources or invest in more efficient mining technologies to remain profitable. We have also seen many miners moving (potentially selling or using as collateral) supplies to secure liquid cash flow as they prepare for machinery upgrades,” Kooner added.

VC firm Framework Ventures also joined the effort.

Co-founder Michael Anderson suggested, “If past Bitcoin halving cycles are any indication of the future, the impact of the upcoming halving may not become apparent until more than a year, or even 18 months, away.” “The first cycle reached all-time highs before the halving, so it is entirely possible that the Bitcoin halving market trend will change as more and more institutional funds enter the market.”

The US spot Bitcoin exchange-traded fund began trading in January of this year and has clearly been a differentiator this time around, generating net inflows of over $12 billion to date.

“During this halving, miners sold less Bitcoin on exchanges,” said Adrian Fritz, head of research at 21Shares, which offers one of the ETFs along with Ark Invest. “It represents,” he said. , said.

Meanwhile, Ledger CTO Charles Guillemet is particularly optimistic about the cycle ahead. “The 2024 halving cycle differs significantly from previous cycles in that the SEC’s approval of a spot Bitcoin ETF added significant demand for Bitcoin, sending the price soaring to all-time highs in March 2024,” Guillemet told The Block. said to

“Thanks to this unprecedented demand, if the price of Bitcoin remains relatively constant at current levels, miners will not have to unplug their machines and sell Bitcoin to survive after the halving. That means miners will win their bet!” Guillemet added.

As transaction fees become increasingly important, miners turn to new Bitcoin ecosystem activities.

Transaction fees have historically been a relatively small percentage of the rewards received by Bitcoin miners compared to block subsidies. However, with new activity on the Bitcoin blockchain this cycle (particularly Ordinals-related activity) and the value of subsidies halving, transaction fees will become increasingly important for Bitcoin miners.

“The upcoming halving will have a multifaceted impact on Bitcoin miners by reducing block rewards and shifting profitability and operating costs,” Fritz added. “Miners may navigate these changes and seek refinancing options to maintain operations, and as block rewards decline, transaction fees will become a major source of revenue for miners. “This signals a shift in the overall Bitcoin economy.”

“This year’s halving is unique in that it comes amidst a series of significant events in Bitcoin and the broader cryptocurrency ecosystem,” said Binance CEO Teng. “In addition to the breakthrough in ETFs, which sparked institutional interest and participation, another major trend in cryptocurrencies today is the boom in layer 2 and DeFi activity on the Bitcoin network, driven by the popularity of the Ordinals protocol and Bitcoin Inscription. .”

The Bitcoin Ordinals protocol, launched in January 2023 by Casey Rodarmor, provides a way to store and trade digital content in Bitcoin. Using satoshis, Bitcoin’s smallest unit, users can inscribe NFTs, BRC-20s (fungible tokens similar to Ethereum’s ERC-20), and other random data directly onto the Bitcoin blockchain. and each piece becomes a unique tradable asset.

“This halving is unique because of ordinal numbers and ETFs. ETFs bring in more capital inflows. Ordinals provides miners with more revenue through fees,” said Bob Bodily, CEO and co-founder of Ordinals marketplace and launchpad Bioniq. “Due to inflows and a more consistent fee market, there will not be as large a hashrate drop this time around as we typically see during halvings.”

Additionally, a new Bitcoin fungible token standard called Runes will be released around the time of the halving, providing a more efficient solution than the UTXO inflation caused by the existing BRC-20 mining process. UTXO (Unspent Transaction Output) represents a specific amount of Bitcoin that a user has received but has not yet spent.

“This halving is very special because it coincides with the launch of the Runes Protocol, Bitcoin’s fungible token standard,” Leonidas, co-founder of Bitcoin Ordinals explorer Ord.io, told The Block. “The timing is no coincidence. “The Runes Protocol will increase Bitcoin’s network fees, driving a significant amount of on-chain activity that will help offset the reduction in miner rewards due to the halving.”

Alexei Zamyatin, co-founder of BOB, a hybrid Bitcoin Layer 2 solution, said this halving era will show growing collaboration between miners and Bitcoin Layer 2 projects. Miners seek additional revenue and Layer 2 seeks to leverage Bitcoin’s security.

“Miners will continue to seek greater returns and will be incentivized to bootstrap new layer 2 Bitcoin projects, because the more successful the use cases built on top of Bitcoin become, the less each halving will be,” Zamyatin said. “This is because as rewards decrease, miners can earn more,” he added.

Jesse Shrader, co-founder and CEO of Lightning Network data provider Amboss, said more mining pools are likely to integrate the Lightning Network after the halving to lower payout thresholds and latency.

“There is growing excitement about alternative uses for the Bitcoin blockchain, including BRC-20 2.0, Ordinal Inscriptions, Runes and Taproot Assets. Although this use creates upward pressure on fees, Taproot Assets is the only one ready to be compatible with Lightning to avoid high fees,” Shrader added. “During the last halving, miners competed fiercely to engrave special messages on halving blocks, and now we expect competition to become even fiercer with the ‘epic sats’ concept commanding an extreme premium among Ordinal enthusiasts.”

“The Bitcoin community has become much more open to new ideas during this cycle, and we are seeing a greater appetite for Bitcoin-adjacent technologies in the VC space as more and more qualified teams begin to build layer 2 infrastructure. ” said Ventures’ Anderson.

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