With less than 200 days left, expectations are high for the halving, an event that occurs once every four years when supply is cut in half. Bitcoin's fourth halving is expected to occur around April 24, 2024. This detailed guide will help you understand the effects of half-life and what to expect.
Countdown to half-life and understanding half-life mechanisms
Current measurements show that there are 193 days left until the half-life, which is scheduled for April 2024. Basically, the Bitcoin halving, coined into Bitcoin by founder Satoshi Nakamoto, occurs every 210,000 blocks, approximately every four years. Once the network reaches a certain number of blocks, the mining reward (the number of Bitcoins miners earn by validating transactions) is cut in half.
For example, the initial mining reward was 50 BTC per block, which dropped to 25 BTC per block after the first reduction in 2012. This system provides a controlled delivery rate that decreases over time. Bitcoin has currently undergone three halvings. The first time was on November 28, 2012, the second time was on July 9, 2016, and the third time was on May 11, 2020, and the reward was reduced to 6.25 BTC.
The upcoming halving will reduce the reward from 6.25 BTC to 3.125 BTC per block. This halving will reduce the annual inflation rate from 1.7% to 0.84%. Considering the current price and daily supply of 900 BTC, the miner is making about $24 million per day in new Bitcoin. If Bitcoin's price remains unchanged, its daily revenue would drop to $12 million, but many expect its value to have increased significantly by then. Historically, Bitcoin's market price has increased before each halving.
Market reaction and miner profitability
In the months leading up to the 2012 halving, the price of Bitcoin soared from less than $5 to more than $13, allowing miners to profit despite lower block rewards. Similarly, before the 2016 halving, prices rose from about $400 to more than $600 by July 2016. By December 2016, the price had exceeded $900. Prices continued to rise in 2020, especially towards the end of the year. Each cut cuts the miner's profits in half, but the higher price gives the miner an advantage.
The future and sustainability of mining companies
Prices have increased over the past three halvings, but that increase is not guaranteed. Until the price of Bitcoin roughly doubles, miners face serious risks to profitability. With each halving, the miner's reward will be cut in half. If prices remain constant or fall, mining may become unprofitable, forcing many miners to stop working, and reducing the hash rate and overall security of the network.
Furthermore, the concentration of mining power could jeopardize the decentralization of the network. However, if the value of Bitcoin rises enough to offset the decline in block rewards, miners will be able to keep their revenue and keep the network running unimpeded. Miners could also benefit from transaction fees if Bitcoin usage and adoption increases significantly.
For example, if 4 billion people trade in Bitcoin every day and each transaction takes his $0.01 fee, the daily fees amount to a total of $40 million. In this scenario, miners can be supported even after the block reward runs out. While Bitcoin price increases will be essential to maintain miners’ incentives during the halving, increased user participation and transaction volumes will also allow miners to benefit from on-chain fees on a larger scale. There is a possibility that The halving will be a major test of Bitcoin's safety and value as an asset.
Although the Bitcoin protocol's cryptocurrency halving makes it possible to predict the date and supply inflation, the future remains unpredictable. No one can predict the future price of Bitcoin or the economics of mining. The network's response to a supply cut is entirely theoretical until a halving occurs.