According to current calculations, there are 193 days left until the next Bitcoin halving, scheduled for April 2024. The Bitcoin halving, a fundamental part of Bitcoin's design by its enigmatic creator, Satoshi Nakamoto, takes place approximately every four years or after every 210,000 blocks. When a specific block number is reached, the mining reward, which is the amount of Bitcoin miners earn for verifying transactions, is cut in half.
To illustrate, the initial mining reward was set at 50 bitcoins per block and reduced to 25 bitcoins per block after the first halving in 2012. This system is designed to control the rate at which new Bitcoins are introduced into circulation, gradually diminishing it over time. As of now, Bitcoin has experienced three halvings: the first on November 28, 2012, the second on July 9, 2016, and the third on May 11, 2020, which lowered the reward to 6.25 BTC.
The upcoming halving will further reduce the reward, from 6.25 BTC to 3.125 BTC per block. This reduction will result in an annual inflation rate decrease from 1.7% to 0.84%. Presently, with current prices and the creation of approximately 900 BTC daily, miners earn around $24 million in new Bitcoins each day. If Bitcoin's price remains stable, this daily revenue would drop to $12 million, although many anticipate a significant increase in value by then. Historically, the price of Bitcoin has surged in advance of each halving event.
Market Response and Miner Profitability
In the months leading up to the 2012 halving, the price of Bitcoin surged from under $5 to over $13, ensuring profitability for miners despite the reduced block reward. Similarly, in the run-up to the 2016 halving, the price rose from around $400 to over $600 by July 2016, ultimately surpassing $900 by December of that year. Prices also experienced significant increases in 2020, particularly later in the year. While each halving does put pressure on miners' profit margins, price surges have consistently kept them in the game.
Bitcoin's price during the first halving in 2012. The Future and Miner Sustainability
However, there are no guarantees that prices will rise during future halvings. If Bitcoin's price does not increase around the time of halvings, miners could face serious challenges to their profitability. Each halving cuts miners' block rewards in half, and if the price remains stagnant or declines, mining operations may become unprofitable. This could potentially lead to many miners shutting down their operations, resulting in a reduced network hashrate and diminished overall security.
Furthermore, a concentration of mining power could pose a threat to the network's decentralization. But if Bitcoin's value rises sufficiently to offset the reduced block reward, miners can continue to operate profitably and support the network effectively. Miners may also generate income from transaction fees, provided there is substantial growth in Bitcoin's use and adoption.
Following the 2024 halving, miners will receive 3.125 BTC per block. The halving in 2028 will further reduce the reward to a mere 1.5625 BTC.
For example, if four billion individuals were to conduct a Bitcoin transaction daily, each incurring a $0.01 fee, this would amount to $40 million in daily fees. Such a scenario could support miners even after block rewards have dwindled. While a rising Bitcoin price is crucial for maintaining miner incentives during halvings, an increase in user engagement and transaction volume can also enable miners to benefit from on-chain fees on a significant scale. The halving serves as a critical test of Bitcoin's security and its value proposition as an asset.
While the Bitcoin protocol's programmed halvings allow for estimates of dates and supply inflation, the future remains uncertain. Predicting Bitcoin's price or mining economics at future halvings is impossible. The network's response to supply constraints is purely speculative until the halving events actually occur.
