Bitcoin has shown strong price movements this year due to surging demand from ETFs and digital assets, masking more serious issues.
Price and Network Activity Divergence
Despite rising prices, Bitcoin's network activity is not keeping pace with asset demand. This creates uncertainty regarding Bitcoin's long-term health, especially with low transaction fees that are critical for rewarding miners.
Mining Decentralization Issues
The situation is worsened by centralization of hashpower, with companies like Foundry and Antpool controlling 30% and 18% respectively. Many individual miners face profitability challenges, threatening the network's decentralization. With the impending block reward reduction in 2028, there’s an increased risk of miner attrition, negatively impacting security.
Stimulating Network Activity
To address the imbalance, developers are working on new BTC-based applications that may help restore fee revenues for miners. For instance, the Babylon Genesis Chain project allows for staking, which could increase demand for blockspace.
To maintain Bitcoin's lofty valuation, the community must create new incentives for network activity and reward miners.
