Key Points
- Bitcoin’s fourth halving event has completed, reducing miners’ block subsidy rewards from 6.25 BTC to 3.125 BTC.
- Industry reactions suggest the halving could impact less efficient mining operations and possibly lead to increased centralization among larger entities.
Bitcoin has successfully completed its fourth halving, which has seen the block subsidy rewards for miners drop from 6.25 to 3.125 BTC. This event took place at block height 840,000, marking a new era for the cryptocurrency’s network.
The Halving Process
Bitcoin halvings are preprogrammed to occur every 210,000 blocks, which is approximately every four years. When a halving happens, miners receive 50% fewer bitcoins as a reward for every block of transactions they mine and add to the blockchain. They continue to earn additional transaction fee rewards for each block mined.
Prior to this, Bitcoin had undergone three halving events. The first reduced the block subsidy inflation from 50 BTC to 25 BTC in 2012, the second to 12.5 BTC in 2016, and the third to 6.25 BTC in 2020. The latest halving will result in miners producing around 450 BTC per day, compared to the previous 900 BTC. In the grand scheme of things, there will only ever be 21 million bitcoins in existence.
Reactions from the Industry
According to Thomas Perfumo, Head of Strategy at Kraken, this halving is significant for several reasons. First, nearly 95% of all bitcoins that will ever exist will have been mined after April 2024. Additionally, the annualized growth of Bitcoin’s supply will soon fall to less than 1% for the first time.
Richard Teng, CEO of Binance, suggests that the reduction in subsidy rewards could lead to some miners leaving the market. This could temporarily impact the network’s processing abilities before the next difficulty adjustment. However, he believes that advancements in mining technology and strategies could mitigate the impact of reduced miner participation.
Jag Kooner, Head of Derivatives at Bitfinex, also shares this view. He believes that the reduced block rewards could put increased pressure on less efficient miners, possibly forcing them out of the market. This could lead to a greater centralization of mining power among larger, more financially robust entities.
Transaction Fees and the Future of Bitcoin Mining
Historically, transaction fees have been a relatively small percentage of the reward received by Bitcoin miners compared to the block subsidy. However, with renewed activity on the Bitcoin blockchain and the subsidy value halving, transaction fees will be increasingly important for Bitcoin miners.
This year’s halving is unique as it comes amid a series of significant events in the Bitcoin and wider crypto ecosystem, according to Binance CEO Teng. He points out the boom of Layer 2 and DeFi activity on the Bitcoin network, fuelled by the popularity of the Ordinals protocol and Bitcoin inscriptions.
The Bitcoin Ordinals protocol, launched by Casey Rodarmor, offers a way to store and trade digital content on Bitcoin. By using satoshis, the smallest units of bitcoin, users can inscribe NFTs, BRC-20s (fungible tokens similar to Ethereum’s ERC-20s), and other arbitrary data directly onto the Bitcoin blockchain. Each piece becomes a unique tradable asset.
Alexei Zamyatin, co-founder of BOB, a hybrid Bitcoin Layer 2 solution, believes this halving epoch will demonstrate growing collaboration between miners and Bitcoin Layer 2 projects. He suggests that miners will continue to look for more revenue and will be incentivized to bootstrap new Layer 2 Bitcoin projects.
