On April 20, 2024, Bitcoin completed its fourth halving, with the block reward reduced from 6.25 to 3.125.
Compared with previous halvings, this halving did not seem to cause much sensation. Retail investors were more concerned about the surge in miners’ transaction fees and were eager to adjust their mining machines to cope with this situation.
Since 2023, the Bitcoin ecosystem has gradually matured, and one of the landmark events is the rise and prosperity of NFT. Thanks to the emergence of NFT, Bitcoin has gradually begun to realize assetization and become the "gold" connecting other digital assets, similar to Ethereum during the ICO boom in 2017.
After the fourth halving, Bitcoin’s inflation rate is expected to drop from approximately 1.75% to just 0.85%, which is only half that of gold. Although the direct impact of this halving is not as significant as the previous ones, for the cryptocurrency industry, the halving is still an important event that heralds the arrival of the bull market. People are willing to believe that halving will trigger a bull market, and this expectation and confidence also contribute to the realization of the bull market to a certain extent.
This halving may just be the beginning for the evolving Bitcoin ecosystem, and it is still early days. Dozens of second-layer solutions for Bitcoin are thriving, and we are still in the early stages, with a lot of potential to be tapped!
What is Bitcoin Halving?
Every time the Bitcoin blockchain generates 210,000 blocks, miners’ block rewards are cut in half. This process usually happens every four years, though the exact interval can vary.
The halving event is a key feature of Bitcoin's design, which limits the total supply of Bitcoin, increases its scarcity, and aims to avoid the uncontrolled issuance of traditional fiat currencies.
It is predicted that the last Bitcoin will be created in 2140, after which no new Bitcoin will be issued.
The Bitcoin halving has brought cyclical expectations to the entire crypto market. It is generally believed that the Bitcoin halving will trigger a bull market. In fact, many halving events in history are closely related to bull market cycles.
Bitcoin halving history
Prior to this, Bitcoin had experienced three halvings. In 2012, the miner's reward was reduced from 50 BTC per block to 25 BTC; then it was reduced to 12.5 BTC in 2016; and it was reduced to 6.25 BTC in 2020. The most recent one was in 2024, after which the block reward dropped to 3.125 BTC.
First halving: November 28, 2012
Bitcoin block where halving occurs: 210,000
Block reward: 50 BTC to 25 BTC
Bitcoin price on the day of halving: $12.3 per coin
Peak price in this cycle: $1,175 per coin
The biggest price increase in this cycle: 9552.85%
Second halving: July 9, 2016
Bitcoin block where halving occurs: 420,000
Block reward: 25 BTC to 12.5 BTC
Bitcoin price on the day of halving: $648.1 per coin
Peak price in this cycle: $19,800 per coin
The biggest price increase in this cycle: 3055.08%
The third halving: May 2020
Bitcoin block at which halving occurs: 630,000
Block reward: 12.5 BTC to 6.25 BTC
Bitcoin price on the day of halving: $8,560.6 per coin
Peak price in this cycle: $67,775.3 per coin
The biggest price increase in this cycle: 791.71%
Bitcoin’s inflation rate changes
Bitcoin’s halving has a significant impact on the inflation rate.
After the first halving, the inflation rate dropped from 25% to 11.78%.
After the second halving, the inflation rate dropped from 8.34% to 4.09%.
After the third halving, the inflation rate dropped from 3.58% to 1.77%.
After the fourth halving, Bitcoin’s inflation rate is expected to drop from approximately 1.75% to just 0.85%.
According to a report by the World Gold Council in early 2024, as of 2023, the total global ground gold supply is 212,582 tons, and the new gold ratio is about 1.64%. This means that after the fourth Bitcoin halving, the supply growth rate of Bitcoin is expected to be about half of that of gold. From the perspective of scarcity, Bitcoin will be more scarce than gold.
The impact of Bitcoin halving
Bitcoin’s halving has a significant impact on shaping Bitcoin’s economics, directly affecting its supply, mining rewards, and overall market expectations.
Among them, for the miners, the reduction in block rewards means that their mining income is halved. This may prompt the mining industry to innovate and integrate, and push mining companies to develop more efficient mining machines. At the same time, miners are also seeking more energy-efficient mining solutions, because only miners with sufficient funds can survive in the early stage of reward reduction.
It is expected that after the halving event, there will be a continuous shift in mining locations, with miners looking for low-cost electricity resources and migrating to these areas. Currently, the United States accounts for about 40% of Bitcoin mining, and Russia accounts for about 20%.
With the decrease in inflation rate, the direct impact of the fourth Bitcoin halving is relatively limited compared with the previous ones. However, for the cryptocurrency industry, halving is still a landmark event and is considered to be a harbinger of the bull market. This expectation and confidence have also driven the bull market to a certain extent.
What happens when all the Bitcoins are mined?
According to the fixed total amount mechanism of Bitcoin, it is expected that all Bitcoins will be mined in 2140. At that time, what will miners face? Who will maintain the security of Bitcoin?
In fact, as early as the birth of Bitcoin, Satoshi Nakamoto mentioned in the white paper: "Once a certain amount of Bitcoin begins to circulate freely, transaction fees will be able to provide sufficient incentives. By then, the Bitcoin network will be completely immune to the inflation problem of the traditional economic world."
When all bitcoins have been mined, miners will no longer receive BTC rewards for mining. However, transactions on the Bitcoin network will continue, requiring miners to verify and record them on the blockchain. At this point, miners will receive income through transaction fees, which will become their only source of income.
However, in 2023, the emergence of inscriptions changed the Bitcoin ecosystem and made it no longer limited to theoretical concepts. In May 2023, inscriptions were launched, causing the proportion of miners' handling fees to exceed 40% at one time.
Now, with the emergence of various Bitcoin Layer2, the Bitcoin ecosystem is gradually growing and the future is promising. However, to be honest, it is estimated that the people who read this article will not live to 2140, so there is no need to worry about it.
The rise of Bitcoin ecosystem
In 2023, the Bitcoin ecosystem really began to take shape, and one of the landmark events was the emergence and popularity of inscriptions. It is precisely because of the emergence of inscriptions that Bitcoin has achieved real capitalization and become a standard currency connecting other assets, similar to Ethereum in the ICO era of 2017.
According to OKLINK data, as of now, about half of the daily transactions on the Bitcoin network are transfers related to ordinarys. So far, ordinarys have brought more than $300 million in transaction fees to miners. It is particularly noteworthy that on November 20, 2023, the transaction fee of the Bitcoin network exceeded that of the Ethereum network for the first time, setting a new record in history.
As the Bitcoin halving event approaches, a lot of attention has been drawn to the launch of the new protocol launched by Casey, the founder of Ordinals, the Runes protocol. This protocol is activated at the moment of Bitcoin halving, when the Bitcoin block height reaches 840,000.
Affected by Runes Mint, Bitcoin transaction fees soared, and the block fee reward even reached 20 BTC, doubling the miners’ income. This phenomenon has caused many people to ridicule and believe that this is a conspiracy of miners.
As the volume of transactions on the Bitcoin chain increases dramatically, Bitcoin's architecture limits its programmability, so the community is actively exploring technical paths such as Layer 2 Rollups adopted by Ethereum to improve the scalability and usability of Bitcoin.
As a result, many Bitcoin Layer 2 solutions have emerged, competing to compete for Bitcoin's total value locked (TVL), which further drives Bitcoin's capitalization.
In addition, a positive innovation is Babylon, which is committed to releasing the profit potential of 21 million bitcoins, introducing the security mechanism of Bitcoin into the POS chain, so that Bitcoin holders can obtain staking income without transferring assets out of the wallet address. At the same time, this also helps to solve the inflation and start-up problems of small and medium-sized POS chains. Miners can use their bitcoins to protect the POS economy and be rewarded for their security.
It can be seen that in the foreseeable future, whether it is miners, capital VCs, project parties, or even retail investors, there is a need to participate in and expand the Bitcoin ecosystem. We are still in the early stages!
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