Bitcoin halving, the stage when the reward for mining is halved, is a cornerstone of Bitcoin's monetary policy laid down by its mysterious creator Satoshi Nakamoto. This process is not just a mechanism to regulate the number of new coins entering circulation, but a key factor influencing BTC's price, its economic model and the perception from investors and users. The past halving of the 20 April 2024 block reward from 6.25 to 3.125 Bitcoin is generating significant interest and speculation regarding its impact on the entire cryptocurrency sphere.
What is Halving?
Bitcoin halving is an event occurring every 210,000 blocks (roughly every four years) that halves the reward for mining a new block on the Bitcoin network. This process ensures that the total number of Bitcoins that will ever be created does not exceed 21 million. Introduced to combat inflation and maintain the deflationary nature of the cryptocurrency, halving plays a central role in the Bitcoin economy.
Historical perspective
First Halving (28 November 2012): The block reward was reduced from 50 to 25 BTC. This event was the first test for Bitcoin's economic model and the market took it positively, showing an increase in price in the following months.
Second Halving (9 July 2016): The block reward was further reduced to 12.5 Bitcoins. Similar to the first halving, the second halving resulted in a significant increase in the price of Bitcoin, confirming the trend that halving events have a positive impact on the value of the currency in the long term.
Third Halving (11 May 2020): The reward dropped to 6.25 Bitcoin per block. This event coincided with the global COVID-19 pandemic, adding unpredictability to the markets. Nevertheless, Bitcoin not only showed resilience but also reached new highs in 2021, emphasising its role as 'digital gold'.
Fourth Bitcoin Halving (20 April 2024): The reward has once again been halved, from 6.25 to 3.125 BTC. After 20 April, the main item of income has been halved and miners are forced to adapt to the new market conditions.
Each Bitcoin halving has served as an important milestone in the cryptocurrency's history, not only in terms of its impact on price, but also as a reminder of its deflationary nature and limited supply. These events highlight Satoshi Nakamoto's foresight in creating a self-regulating economic system that can maintain its value over the long term. Halving in 2024 continued the tradition, adding a new chapter to Bitcoin's ever-evolving history.
Bitcoin Halving chart
The implications of Bitcoin halving in 2024
Decrease in miner revenue: Following the Halving on 20 April 2024, the basic block reward was halved from 6.25 BTC to 3.125 BTC. This resulted in a significant reduction in daily revenue for miners, which fell to a record low of $26.3 million per day, compared to approximately $60 million per day prior to Halving.
Changes in reward structure: Transaction fees, which are also part of miners' income, experienced a temporary increase due to increased demand for transaction processing during the launch of Ordinals and Runes protocols. However, after an initial spike, the level of commissions also decreased.
Impact on mining complexity and profitability: The complexity of mining reached record levels after Halving, which increased the cost of mining each bitcoin. This led to a decrease in the profitability of mining.
Adaptation of miners: Big mining companies started investing in more efficient equipment and data centres to adapt to the new environment and improve the efficiency of their operations. Some companies have even had to dismantle some of their outdated equipment to reduce losses.
Long-term outlook and strategies: Analysts and experts predict that miners will need to maintain a higher bitcoin price (approximately $80k) for mining to remain profitable under current conditions. This poses some risk to smaller mining operations that may not be able to compete without significant investment in technology upgrades.
These changes reflect both Halving's direct impact on the economics of mining and broader trends in the cryptocurrency market, including innovations in blockchain technology and changes in consumer demand for crypto transactions.
Significance for miners and the market
Increase in the cost of extraction:
With each halving, the reward for a mined block is halved, which increases mining costs for miners. To maintain profitability, they need to improve efficiency and reduce operating costs, including by using more advanced equipment and finding cheaper sources of electricity.
Impact on profitability:
Miners may experience a temporary decline in revenues after halving, especially if the increase in the Bitcoin price does not compensate for the decrease in rewards. This may lead to less efficient miners exiting the market, which in turn increases the share of rewards for the remaining participants.
Effects of Halving on the ecosystem
Impact on Bitcoin price
Previous Halwings have shown that the price of Bitcoin usually rises in the months before and after an event. This is due to market expectations and less pressure from sellers as miners receive less rewards.
However, it's important to note that the cryptocurrency market is very volatile, and many other factors also affect the price.
Strategies for miners
Miners need to improve the efficiency of their operations to stay profitable after halving. This may include upgrading equipment, finding cheaper energy sources, or switching to more profitable coins for mining.
Long-term perspectives
Halving favours Bitcoin's long-term value growth by supporting its deflationary nature and limited supply. This makes Bitcoin an attractive asset to preserve value over time.
Each Bitcoin halving has served as a milestone in the cryptocurrency's history, not only in terms of its impact on price, but also as a reminder of its deflationary nature and limited supply. These events highlight Satoshi Nakamoto's foresight in creating a self-regulating economic system that can maintain its value over the long term. Bitcoin Halving in 2024 continues the tradition, adding a new chapter to the ever-evolving Bitcoin story.
