Bitcoin BTC +1.32%’s latest halving is now complete, reducing miners’ block subsidy rewards 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. Many in the community hoped that the halving would occur on the memorable date of April 20, but in the U.S. market that hope failed to materialize as miners appeared to increase hashrate on the network ahead of the subsidy drop.
The Bitcoin halving is programmed to occur automatically every 210,000 blocks — approximately every four years. Once a halving event occurs, miners receive 50% less Bitcoin as a subsidy reward for each transaction they mine and add to the blockchain. However, they continue to earn additional transaction fee rewards for each block they mine normally.
Prior to this, Bitcoin has experienced three halving events in its history, with its block subsidy inflation dropping from 50 BTC to 25 BTC in 2012, then to 12.5 BTC in 2016, and the last halving was on May 11, 2020, dropping to 6.25 BTC.
The latest halving means that miners will now produce an average of about 450 BTC per day, compared to 900 BTC previously. In the long run, there will only be 21 million Bitcoins in existence.
Halving events will continue until the last Bitcoin is expected to be mined around 2140. After this time, miners will only be able to earn income from transaction fees.
Industry reaction - "Miners are about to win the stake"
Thomas Perfumo, head of strategy at Kraken, said today’s halving, sometimes referred to as the “halvening,” is perhaps the most important for a number of reasons.
“First, after April 2024, nearly 95% of all Bitcoins in existence will have been mined. Furthermore, the annualized growth rate of Bitcoin’s supply will soon fall below 1% for the first time.”
While miner revenues have increased this year as the price of Bitcoin has risen, the extent to which the halving will affect less efficient mining operations and overall network metrics following the subsidy drop remains to be seen.
Binance CEO Richard Teng told The Block that the reduction in subsidy rewards could cause some miners to exit the market, temporarily affecting the network's 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 technology and strategies, as well as potential adjustments to mining difficulty, could mitigate the impact of reduced miner participation,” he said. “In addition, some miners may choose to switch to mining altcoins or explore alternative sources of income in the cryptocurrency space, which could help maintain balance in the overall mining ecosystem.”
“Some miners are expected to face increased pressure due to reduced block rewards, which could force less efficient companies out of the market. This could lead to a greater concentration of mining power in larger and more financially powerful entities,” said Jag Kooner, head of derivatives at Bitfinex.
“However, this shift also presents an opportunity for innovation and efficiency gains within the industry. Miners may explore new regions with cheaper energy or invest in more efficient mining technology to maintain profitability. We also see many miners moving supply (perhaps selling it or using it as collateral) to achieve liquid cash flow in preparation for upgrading their machines,” Kooner added.
Venture capital firm Framework Ventures also participated.
"If past Bitcoin halving cycles are any indication of the future, the impact of the upcoming halving may not be felt until more than a year, or even 18 months later," said co-founder Michael Anderson. "The first cycle before the halving has reached a new all-time high, so as more institutional money enters the market, it is entirely possible that the Bitcoin halving market trend will change."
The U.S. spot Bitcoin ETF, which began trading in January, has certainly been a differentiator this time around, generating more than $12 billion in net inflows to date.
“Miners are selling less bitcoin on exchanges during this halving cycle, suggesting a more bullish stance from miners amid the surge in prices and increased accessibility driven by ETF inflows,” Adrian Fritz, head of research at 21Shares, which offers one of the ETFs along with Ark Invest, said.
Meanwhile, Ledger CTO Charles Guillemet is particularly optimistic about future cycles. “The 2024 halving cycle is very different from previous halving cycles because the SEC’s spot Bitcoin ETF approval adds a lot of demand for Bitcoin, driving the price of Bitcoin to a new all-time high in March 2024,” Guillemet told The Block.
“Due to this unprecedented demand, if the Bitcoin price remains relatively stable, miners will not have to unplug their machines and sell their Bitcoin savings to survive after the halving. In other words, miners are about to win on their stake,” Guillemet added.
As transaction fees become more important, miners turn to new Bitcoin ecosystem activities
Compared to the block subsidy, transaction fees have historically been a small fraction of the rewards received by Bitcoin miners. However, with new activity on the Bitcoin blockchain this cycle — particularly ordinal-related activity — and the halving of the subsidy value, transaction fees will become increasingly important to Bitcoin miners going forward.
“The upcoming halving will have a multi-faceted impact on Bitcoin miners by reducing block rewards and shifting profitability and operating costs,” Fritz added. “Miners will likely seek refinancing options to cope with this shift and maintain operations, and as block rewards decrease, transaction fees will become the primary source of income for miners — suggesting a shift in the entire Bitcoin economy.”
“This year’s halving is unique in that it occurs amidst a series of other major events happening in Bitcoin and the broader cryptocurrency ecosystem,” said Binance CEO Teng. “In addition to the ETF breakout that is sparking institutional interest and participation, another major trend in the crypto space today is the boom in Layer 2 and DeFi activity on the Bitcoin network, fueled by the popularity of the Ordinals protocol and Bitcoin Inscription.”
The Bitcoin Ordinal Protocol was launched by Casey Rodarmor in January 2023 and provides a way to store and trade digital content on Bitcoin. Using Bitcoin's smallest unit, Satoshi, users can write NFTs, BRC-20 (fungible tokens similar to Ethereum's ERC-20), and other arbitrary data directly onto the Bitcoin blockchain, with each block becoming a unique tradable asset.
“This halving is also unique because of ordinals and ETFs. ETFs bring in more inflows. Ordinals provide miners with more fee income,” said Bob Bodily, CEO and co-founder of Ordinals Marketplace and Launchpad Bioniq. “Because the inflows and fee market are more aligned, this time we won’t see as big of a drop in hashrate as we typically see during halvings.”
Additionally, a new Bitcoin fungible token standard called Runes was introduced at the time of the Bitcoin halving, providing a more efficient solution to the UTXO bloat caused by the existing BRC-20 minting process. A 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, a standard for fungible tokens on Bitcoin,” Leonidas, co-founder of Bitcoin Ordinals browser Ord.io, told The Block. “The timing is not a coincidence. The Runes protocol will trigger a large amount of on-chain activity, which will increase Bitcoin’s network fees, which will help offset the reduction in miner rewards brought about by the halving.”
Alexei Zamyatin, co-founder of hybrid Bitcoin Layer 2 solution BOB, said this halving era will showcase growing collaboration between miners and Bitcoin Layer 2 projects, with miners seeking additional income and Layer 2 seeking to leverage Bitcoin’s security.
Zamyatin added: “Miners will continue to seek more income and will be incentivized to launch new layer 2 Bitcoin projects because the more successful the use cases built on Bitcoin, the more miners will be able to earn as the reward decreases with each halving.”
Jesse Shrader, co-founder and CEO of Lightning Network data provider Amboss, said that after the halving, more mining pools may integrate the Lightning Network to reduce payment thresholds and waiting times.
“There is growing excitement about alternative uses of the Bitcoin blockchain, including BRC-20 2.0, Ordinal Inscriptions, Runes, and Taproot Assets. These uses create upward pressure on fees, but only one is close to being ready to be compatible with Lightning to avoid high fees: Taproot Assets,” Shrader added. “The last halving saw fierce competition among miners to write special information into the halving blocks, and now, with the concept of ‘epic satellites’ commanding an extreme premium among Ordinal enthusiasts, expect competition to intensify.”
“During this cycle, the Bitcoin community has become more open to new ideas, and as more qualified teams begin to build layer 2 infrastructure, we’re seeing greater interest in Bitcoin-related technologies from the venture capital space,” said Anderson of Ventures.