This update has been delayed for many days, one reason being that I was wondering why the market went this way and what kind of force was behind it.

On the other hand, the main technology narrative has been delayed, and the international situation has become the main topic. After fighting in the east and the west, there are undercurrents. Back to the topic, the halving is expected, and I read Satoshi Nakamoto's interpretation of this. There are not many words, but the information is very rich, especially the last few sentences.

“Total issuance will be 21,000,000 coins. It will be distributed to network nodes as they produce blocks, and the amount will be reduced by half every 4 years. First 4 years 10,500,000 coins Next 4 years: 5,250,000 coins Next 4 years: 2,625,000 coins Next 4 years: 1,312,500 coins, etc… When that amount is used up, the system can support transaction fees if necessary. It is based on open market competition, and there will probably always be nodes willing to process transactions for free.” — Satoshi Nakamoto

At this point, the Bitcoin network is experiencing a renaissance of innovation and experimentation, as we have seen it in the past through the lens of a robust, secure, and static ledger. Ordi, Stamps, Runes, BRC-20, and ORC-20, as well as L2 projects like RGB, Mintlayer, Mercury Layer, Ark, and Chaumian ECash projects like @fedimint and @CashuBTC, mark an evolution of creativity and technology. These advances are more than just technological advances; they represent an expansion of Bitcoin’s purpose, transforming it from a mere store of value and medium of exchange to a platform capable of supporting complex financial instruments, digital assets, and privacy-enhanced transactions. The interaction between these innovations and the upcoming halving could bring new dynamics to network fees at the least, and impact miner incentives and Bitcoin’s overall economic landscape at the largest.

The surge in activity such as tokenization, smart contracts, and private transactions on Bitcoin's L2 protocol and sidechains provides a compelling narrative that challenges Ethereum-centric DeFi and NFTs. Projects such as RGB, Liquid Network, and Mintlayer are pioneering the tokenization of traditional assets and Bitcoin securities, while also blurring the lines between traditional financial markets and the growing digital asset economy. Enhancing the functionality, scalability, and appeal of Bitcoin as a versatile financial infrastructure.

The fourth Bitcoin halving stands out among these innovations, acting as both a catalyst for economic realignment and a test for Bitcoin’s evolving ecosystem. The reduction in block rewards is likely to increase competition for block space, potentially driving up transaction fees and increasing effective utilization of the network. Both of these scenarios are likely to incentivize users to seek out alternative trading venues, in turn spurring further innovation and adoption in these areas, which could benefit L2 and sidechains.

While there is optimism about the potential of these developments to enhance Bitcoin’s utility and market position, there are also concerns about network congestion, fee market dynamics, and the decentralization that underpins Bitcoin. The interplay between this slew of new L2 and sidechain projects and the economic changes triggered by the halving will likely shape Bitcoin’s trajectory over the next few years.

The rise of tokenized projects on the Bitcoin network, such as Ordi, Stamps, and BRC-20, has introduced a novel and somewhat controversial layer of activity. In some cases, transaction fees generated by these tokenized efforts have exceeded the current block reward of 6.25 Bitcoin, demonstrating their potential impact on the network's economic model. Innovative uses of Bitcoin's base layer to store non-financial data through these tokens have triggered a new source of demand for block space, inadvertently increasing transaction fees.

While these projects have undeniably contributed to increased fee revenue in the short term, their reliance on the existing structure of the Bitcoin blockchain means that they are inherently limited by the scalability and cost constraints imposed by increased block space requirements.

Looking ahead, the upcoming Bitcoin halving will further exacerbate the economic dynamics underpinning these tokenized projects. As the block reward is halved, the resulting scarcity of new Bitcoin issuance is expected to drive up the value of transaction fees as a component of miner revenue. This shift is likely to result in an increase in blockspace fees as miners seek to compensate for the reduction in block rewards. In such an environment, the economic viability of projects such as Ordis, Stamps, and BRC-20 tokens may be challenged as the cost of embedding large amounts of non-financial data into the blockchain becomes prohibitively expensive for many users. The expected increase in transaction fees after the halving may prioritize financial transactions over these novel tokenized uses, potentially making the latter a sustainable source of fee revenue.

Non-traditional tokenization projects such as Ordi, BRC-20 tokens, and Stamps have temporarily supplemented Bitcoin's fee market, sometimes even exceeding block rewards in fee revenue. However, as block space becomes a scarce resource after the halving, transaction fees are expected to increase, and the long-term viability of these projects is shrouded in uncertainty. This impending scarcity raises a key question: whether existing L2 protocols can generate enough fee revenue to maintain miner profitability.

L2 solutions such as the Lightning Network and sidechains such as Liquid have played an important role in expanding Bitcoin’s transaction capacity while maintaining the integrity and decentralization of the base layer. By facilitating fast, low-cost off-chain transactions, these protocols not only improve the user experience, but also have the potential to open up new revenue streams for miners through mechanisms such as channel opening and closing transactions. However, it is an open question whether these off-chain solutions can make up for the halved block reward by increasing transaction volume. The effectiveness of L2 protocols in maintaining miner income will largely depend on their adoption rate, increased usage, and the degree to which they incentivize on-chain settlement of transactions.

Given these challenges, the Bitcoin community may need to explore other strategies to ensure the long-term economic sustainability of the network. This may involve further innovation in L2 technology, enhancements to fee market mechanisms, or even new forms of economic activity that generate significant fee revenue. The goal is to create a strong, self-sustaining economic model that supports miner profitability, protects network security, and maintains Bitcoin's core values ​​of decentralization and censorship resistance.

In conclusion, the upcoming post-halving era brings challenges and opportunities to Bitcoin. As the network transitions to a fee-driven revenue model for miners, the success of L2 protocols and the emergence of new fee-generating activities will be critical to maintaining the security and integrity of the blockchain. The ability of the Bitcoin community to innovate and adjust its economic incentive structure will determine the network's resilience and ability to continue to serve as a decentralized and censorship-resistant cryptocurrency in the coming years.