Understanding the Halving Mechanism and the Countdown to Halving
According to current calculations, the scheduled halving in April 2024 will occur in 193 days. In essence, the Satoshi Nakamoto-coded Bitcoin halving takes place every 210,000 blocks, or roughly every four years. The mining reward, or the amount that bitcoin miners receive for validating transactions, is cut in half when the network reaches a specific block number.
For instance, following the first halving in 2012, the mining reward per block dropped from 50 to 25 bitcoins. With the help of this system, a controlled supply rate is maintained over time. Until now, there have been three halvings of the value of one bitcoin: the first occurred on November 28, 2012, the second on July 9, 2016, and the third on May 11, 2020, when the reward was reduced to 6.25 BTC.
With the forthcoming adjustment, the payout per block will drop from 6.25 Bitcoin to 3.125 Bitcoin. The inflation rate will drop from 1.7% annually to 0.84% as a result of this halving. Given current pricing and the 900 BTC that are currently being issued per day, miners make about $24 million in new bitcoins every day. The daily revenue would drop to $12 million if the price of bitcoin remained constant, but many anticipate a considerable rise in price by that time. Prior to each halving in the past, the market price of bitcoin has increased.
Response of the Market and Miner Profitability
Bitcoin's price soared from under $5 to over $13 in the months leading up to the 2012 halving, ensuring miner profitability despite a smaller block reward. Similar to this, the price increased from about $400 to more than $600 by July 2016 in advance of the 2016 halving. It went over $900 in December 2016. Additionally, prices rose in 2020, especially later in the year. The profit margins for miners are reduced by half with each reduction, but price increases have maintained them competitive.
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| The cost of bitcoin in 2012, just before the initial halving. |
The Future and Sustainable Mining
It's not a guarantee, but prices have increased over the previous three halvings. Miners run substantial risks to their financial viability if the price of bitcoin doesn't increase at halving times. The block reward money for miners is halved with each halving. A decline in price could make mining unprofitable, perhaps driving many miners to stop working and lowering the network's hashrate and overall security.
The decentralization of the network may also be threatened by a concentration of mining power. However, miners can continue to make a profit and maintain the network without interruption if bitcoin's price increases enough to offset the block reward reduction. Under the condition that there is a large increase in the use and adoption of bitcoin, miners may potentially benefit from transaction fees.
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| After the 2024 halving, miners will get 3.125 BTC per block. 2028’s halving will further whittle down the reward to a scant 1.5625 BTC. |
For instance, $40 million in daily fees would be incurred if four billion people each made one bitcoin transaction per day, with each transaction costing $0.01. Even once block incentives disappear, such a setup might help the miners. While a rising bitcoin price is necessary to preserve miner incentives during halvings, an increase in user activity and transaction volume can also make it possible for miners to gain significantly from onchain fees. The halving is a crucial test of bitcoin's asset value and security.
Although the coded supply halvings in the bitcoin protocol give projections of dates and inflation, the future is still unclear. Nobody can predict the price of bitcoin or the economics of mining at upcoming halvings. Up until actual supply halvings, the network's responses to tightening supply are only theoretical.
How do you feel about the impending award reduction by half? Post your ideas and viewpoints on this topic in the comments area below.