In the world of digital currency, few events can attract as much widespread attention and discussion as the Bitcoin halving. With the approach of 2024, the countdown to the next halving event is about to enter the final 100 days, and market-related topics are heating up. ViaBTC, as a leader in the field of cryptocurrency mining pools, accepted our exclusive interview and shared their views on the narrative of Bitcoin halving and the future of the PoW (Proof of Work) mining industry.
Knowledge Brief: The Basic Principle and History of Bitcoin Halving.
The halving of Bitcoin occurs when the reward for generating new blocks in the Bitcoin blockchain is cut by half every 210,000 blocks, or roughly every four years. This preprogrammed event, crafted by the creator Satoshi Nakamoto, serves to manage Bitcoin’s total supply and mitigate inflation risks.
The first halving event in Bitcoin’s history took place in 2012, slashing the reward for each mined block from 50 to 25 BTC. This event set the precedent for future halving, occurring every four years and halving the block reward. Subsequent halving saw rewards decrease to 12.5 BTC in 2016 and 6.25 BTC in 2020.
The halving mechanism profoundly influences Bitcoin’s economic framework and market dynamics. It not only cements Bitcoin’s scarcity by capping its supply at 21 million but also garners extensive market attention during each halving, significantly affecting its price. In the long run, this design is considered conducive to the steady growth of Bitcoin’s value.
1. From a mining pool’s standpoint, what’s your take on the current Bitcoin halving cycle? How do you perceive its influence on the actions of investors and miners?
As a key storyline in the crypto industry, the Bitcoin halving exerts a notable impact across the sector, impacting diverse stakeholders such as mining pools, miners, and investors. The diminished block rewards upset the market’s supply and demand balance, which could lead to marked fluctuations in Bitcoin’s price in the near term. Historical precedents from the three past Bitcoin halving have clearly demonstrated this effect.
Past Bitcoin halving have provided investors and miners with valuable experience in dealing with notable short-term price volatility. Short-term investors often capitalize on these periods of fluctuation, engaging in active trading to maximize their returns. Long-term investors, conversely, focus on the halving’s prospective impact on Bitcoin’s future valuation. Their goal is long-term value appreciation, adjusting their investment strategies in line with market trends before and after the halving. This approach allows them to remain unaffected by transient market movements.
For miners, advanced planning and thorough preparation are crucial. Key strategies such as reducing operational costs and upgrading to more efficient mining equipment are essential to stay profitable and competitive. Observing current market trends, mining companies including HIVE Digital, Cipher Mining, and DMG Blockchain Solutions are proactively acquiring the latest generation of miners with an energy efficiency of 20 J/T, adapting to the halving with enhanced mining efficiency.
Large-scale miners can sustain their profits by updating their equipment and leveraging their significant cash reserves to manage post-halving short-term price volatility. In contrast, smaller miners, constrained by size and financial resources, often face challenges in staying competitive, sometimes leading to operational shutdowns due to reduced profitability. Addressing this, ViaBTC has introduced two tools, ‘Hedging Services‘ and ‘Crypto Loan,’ rooted in hedging strategies, providing viable solutions for small miners to navigate price volatility and optimize their financial resources.
2. With the Bitcoin halving event expected to reduce miners’ profits, what’s your perspective on its possible effects on Bitcoin network security?
Firstly, we need to first understand the relationship between hashrate and network security. Theoretically, higher hashrate, widespread distribution, and smaller fluctuations point to a more secure network. Miners contribute to the overall security of the Bitcoin network by investing in hashrate. In this process, giving miners certain BTC rewards is not only a recognition of their contributions but also a positive incentive for them to continue maintaining network security.
After the halving event, the reward for each block will drop from 6.25 BTC to 3.125 BTC. Assuming other conditions remain the same, this means the amount of BTC miners receive for mining each block will be half of what it was before. If the price of Bitcoin does not rise significantly, those high-cost small miners will find it hard to continue mining based solely on faith. They may choose to shut down their mining rigs until mining becomes profitable again. Meanwhile, if these small miners spread across the globe go offline in succession, the task of verifying and propagating Bitcoin transactions may become concentrated in the hands of a few nodes, increasing the risk of network centralization.
Therefore, how to increase miners’ income is to some extent equivalent to how to make the network more decentralized and secure. Fortunately, in the past year, the transaction fees on the Bitcoin network have surged, greatly enhancing the profitability of Bitcoin mining. This trend has been driven by the explosive popularity of BRC-20 tokens.
The revenue of miners from mining activities includes block rewards and transaction fees, with transaction fees being immune to the Bitcoin halving. Since the year 2023, the BRC-20 token has been a significant contributor to miners’ transaction fee income, increasingly accounting for a larger slice of their total earnings. Blockchain explorer data shows that, over the past month, miners globally garnered roughly 8,063 BTC from transaction fees, which was 22.2% of their total revenue. Remarkably, there were 11 days within this period where transaction fees surpassed 25% of the overall income.
With each round of halving, the block rewards will gradually decrease until they are nearly zero, meaning that in the future, miners’ main income will highly depend on transaction fees. In this context, the innovative attempts of BRC-20 provide more imagination for ways to increase miners’ income in the future, and also open new paths for the sustainability of mining. As long as Bitcoin mining remains sufficiently attractive, a continuous stream of miners will join, ensuring the security of the Bitcoin network.
3. The PoW mining industry is facing multiple challenges such as energy consumption, environmental sustainability, and regulatory pressure. How do you view the development prospects of the PoW mining industry in the coming years?
With heightened environmental awareness and growing alarm over global climate change, the energy-heavy PoW mining sector has recently come under considerable scrutiny. Some nations have even passed laws to outright prohibit crypto mining. However, it’s crucial to remember that significant energy consumption is a hallmark of many human commercial and industrial activities. Therefore, in judging whether a project’s energy use is excessive, the focus should not only be on the sheer amount of energy consumed but also on the balance between energy expenditure and the societal value generated.
Bitcoin mining, requiring extensive complex hash computations, inherently demands significant electrical power. But this investment in electricity is offset by substantial financial returns. Over the past year, the Bitcoin mining industry generated approximately $9.85 billion in annual revenue, boosting the growth of associated industries. Miners themselves can garner upwards of $40 million in daily earnings from Bitcoin mining.
Currently, Bitcoin mining is gradually transitioning to the use of sustainable energy. From the perspective of interest, miners tend to look for idle, low-cost energy sources while chasing profits. Sustainable energy, with its abundant resources and wide distribution, is an ideal choice for miners. According to a survey report by the Bitcoin Mining Council (BMC), 63.1% of the electricity currently used by BMC members and survey participants is a sustainable power mix. Based on these data, the global sustainable electricity structure of the Bitcoin mining industry has slightly increased to 59.9%, still making it one of the most sustainable industries globally.
Following China’s 2021 ban on mining, the Bitcoin mining industry has evolved over the past two years, leaving behind its previously unregulated and rapid expansion phase. In the future, it is poised to embrace a trajectory characterized by increased internal transparency and adherence to external regulatory standards.
4. Being among the world’s top five Bitcoin mining pools, what are ViaBTC’s planned strategic adaptations to address the market fluctuations following the Bitcoin halving?
As a distributed alliance of miners, mining pools bring together a vast amount of computational power from all over the world. Each Bitcoin halving is a reshuffling of the deck, as well as a process that allows more people to participate. However, if there is a large-scale exit of old mining rigs and the introduction of new ones, a noticeable transition lag will occur. Shutting down mining rigs is a simple process, but deploying new mining sites and starting new rigs takes time. Therefore, during this transition period, the hash power of the Bitcoin network may experience significant fluctuations.
For mining pools, the primary task at present is to continue providing miners with an efficient and stable mining network, constantly optimizing and improving the product experience. Since its establishment in 2016, ViaBTC has experienced two Bitcoin halving and has accumulated considerable experience in dealing with market changes post-halving.
Survival is the top priority for miners. It is necessary to exchange mining profits for stable assets like USDT to lock in earnings. For that to happen, the daily mining revenue must be paid as soon as possible. While the daily mining revenue is settled the next day on most pools, ViaBTC stands out as one of the few pools that settle mining rewards hourly, allowing miners to utilize block rewards much more efficiently. In addition, we also offer Auto Conversion, a feature tailored to miners that helps them convert earnings into BTC or USDT, which is pegged at a 1:1 ratio with the US dollar. It protects miners from asset depreciation as a result of price decline.
At the same time, we are intensifying our initiatives in asset management. Based on traditional financial concepts, the two tools we launched, ‘Hedging Services‘ and ‘Crypto Loan,’ although having certain entry barriers, can become powerful tools for miners to effectively cope with short-term market fluctuations brought by halving if used appropriately.
Cyclicality is an important characteristic of Bitcoin and the entire cryptocurrency industry. Historical data shows that Bitcoin halving events resonate with industry cycles. For enterprises, individual miners, or personal investors, maintaining a long-term perspective in this market is crucial. In the short term, halving undoubtedly impacts market prices and the entire mining industry, but from a long-term perspective, it helps to enhance the industry’s understanding of market volatility and ability to respond to risks.
