The crypto market has been recording new highs so far this year, and the growth is mainly because of Bitcoin’s big moves. Market analysts and investors believe that the increased interest in crypto we are currently experiencing is because of the upcoming Bitcoin halving.
The event is scheduled for April 2024 and will reduce miners’ fees by 50%. Because it will slash their profits, some people fear that miners will leave the Bitcoin network after halving is completed. But what does history say about this, and should we be worried?
What is Bitcoin Halving, and Why is it Important?
Before discussing why Bitcoin miners may or may not reduce after the next halving, here’s all you need to know about Bitcoin halving and its importance to the Bitcoin network.
The number of Bitcoins that will ever exist is 21,000,000, and 19,650,000 BTC are in circulation at the time of writing this post.
Bitcoin halving happens after every 210,000 blocks (roughly four years). The last one was in May 2020, so the next is scheduled for April 2024. You can follow the countdown here.
So, why is Bitcoin halving important?
Picture this. When you send Bitcoin to your friend’s wallet address, the network automatically adds your transaction to a block and assigns it to a miner.
Without the miner confirming your transaction, your friend won’t receive the BTC, which is why miners are important. As a reward for their job, the network pays each miner with free BTC. The payment is called a mining reward, which is currently 6.25 BTC per block.
When Satoshi Nakamoto created BTC, he included halving in the blockchain’s system to limit the coin’s supply over time.
Remember we said we already have 19.65 million of the total 20 million BTC that will ever be created? If we keep trading and miners keep getting their rewards added to the existing supply, we will get to a point where there won’t be new BTC for you or anyone else to buy.
Plus, if the supply isn’t checked, there will be inflation, and Bitcoin will lose value. So, halving reduces mining rewards by half every four years to help the coin maintain value and prevent oversupply.
What Does Bitcoin Halving Mean for Miners?
As stated earlier, the major thing that will happen when this year’s halving is completed will be a 50% reduction in miners’ rewards. That means miners will get 3.125 BTC as rewards instead of the current 6.25 BTC.
Simply put, the event will affect their profits since they’ll be getting less BTC per transaction block.
Because of this, market analysts predict that some miners will leave the Bitcoin network since they won’t make enough money to sustain their mining business.
Others say they will leave in search of other sources of income to keep their businesses running because Bitcoin’s price will drop. These concerns are valid because miners spend a lot on operating costs. Buying and maintaining mining hardware also doesn’t come cheap.
Miners are very important to Bitcoin, and their exit will really affect Bitcoin’s future. Plus, a fall in the price of Bitcoin will negatively impact the entire crypto market. But our research shows that history doesn’t agree with these predictions.
History Doesn’t Predict Bitcoin’s Doom
Since this isn’t the first Bitcoin halving, let’s look at data from the previous events for historical market trends.
First Halving (2012)
The first-ever Bitcoin halving in 2012 reduced miners’ rewards from 50 BTC to 25 BTC. Despite the reduction, Bitcoin’s price increased from $13 to over $1,100 12 months later.
Second Halving (2016)
The next halving in 2016 cut mining rewards from 25 BTC to 12.5 BTC. Still, Bitcoin’s price moved from about $660 pre-halving to $17,000 some months after halving.
Third Halving (2020)
After the most recent halving in 2020, Bitcoin block rewards fell from 12.5 BTC to 6.25 BTC. Yet, the BTC price went from around $9,700 to over $67,000 the following year.
What does this mean?
History shows that there’s always an increase in Bitcoin’s price after every halving. Usually, the growth starts some months after the event and gets stronger with time.
Bitcoin Miners Will Remain Post-Halving for Many Reasons
So far in 2024, Bitcoin has shown us that the end isn’t near. Having reached new all-time highs, experts are positive that the coin may reach $100,000 post-halving.
Some even say it will be more since more institutional investors are buying Bitcoin after the spot Bitcoin exchange-traded funds (ETFs) approval by the US Securities and Exchange Commission.
If Bitcoin keeps attaining new highs, it’s only a matter of time until miners start getting more value despite receiving fewer Bitcoins in rewards. So, it’s unlikely that they’ll leave.
Also, the network keeps developing, and our guy, Matthew Schultz, says Bitcoin Ordinals will help miners make more money.
Bitcoin Ordinals allow users to create and store images, texts, and other digital information on the Bitcoin network. They are like non-fungible tokens (NFTs) in the Bitcoin world. Since its launch in 2023, miners have been boosting their income with Ordinals transaction fees.
For context, they’ve made over $200 million from the high transaction fees users pay to put Ordinals on the Bitcoin blockchain. That is aside from their primary mining rewards. So, these guys are making cool cash, and why would they leave?
Final Thoughts
Though small mining companies may struggle after this year’s halving due to a sharp fall in their income, big mining firms will continue to grow their businesses and take advantage of Bitcoin’s post-halving future.
For these reasons, it’s safe to say that Bitcoin mining will continue to be profitable for miners as the blockchain continues to grow.
As a Bitcoin holder or investor, this doesn’t really affect you, except that there was a significant price increase in Bitcoin’s price after the previous halving events and you may anticipate the same.
