Every four years, Bitcoin undergoes a halving process, which is a built-in mechanism designed to limit the creation of new bitcoins. This event enhances the value of existing Bitcoins by creating scarcity and boosting demand. The upcoming halving, anticipated around April 2024, will mark the fourth instance of this occurrence in Bitcoin’s history, following the successful price increases seen after the first three events.
In this blog, let us discuss how Bitcoin Halving works and how miners will face billions in losses.
How Does Bitcoin Halving Work?
Bitcoin undergoes a halving process approximately every four years, which is triggered when 210,000 blocks have been mined. This event reduces the reward given to miners for each new block they add to the Bitcoin blockchain by half. The resulting decrease in the supply of new Bitcoins entering circulation contributes to a perceived scarcity, potentially driving up demand and increasing the price of Bitcoin.
Bitcoin’s halving process significantly impacts Bitcoin’s market dynamics by increasing demand and controlling inflation. This is achieved through a decrease in mining rewards. For example, during the May 2020 halving, the reward for mining a block was lowered from 12.5 Bitcoins to 6.25 Bitcoins.
In simple terms, the forthcoming reduction in block rewards from 6.25 Bitcoins to 3.62 Bitcoins following the upcoming halving event will result in lower profits for miners, affecting their income derived from Bitcoin mining operations.
Bitcoin Halving Will Snatch $10 Billion In Rewards From Miners
Miners typically earn approximately 900 Bitcoins every day as rewards. However, following a halving event, this reward will decrease to around 450 Bitcoins per day. This change results in a potential loss of over $10 billion annually for miners. Such a substantial financial hit may cause some miners to consider switching from Bitcoin to other Proof-of-Work networks as an alternative.
The Bitcoin halving, which is known to boost the crypto market and trigger a bull run, also has negative consequences for the mining industry. Miners are compelled to upgrade their technology and invest more in equipment to remain profitable after each halving event. This occurs approximately every four years, making it a significant financial challenge for miners.
Competitive mining companies such as Marathon Digital Holdings and Clean Spark acquire smaller rivals or take over the industry to thrive in today’s intense market conditions. Successful organizations can capitalize on the favorable post-halving market upturns. Regrettably, some firms encounter insurmountable technological and economic challenges instead.
During an interview, Ben Smith, the CEO of Immersion BTC, was asked to discuss the challenges that may arise after the halving event. His response was:
After the Bitcoin halving, the main challenge will be the decrease in daily income. The Bitcoin price must go up to cover the costs of energy and other expenses for mining. I believe that the overall hash rate will drop significantly in the short term following the halving. This decline could make it harder for less profitable miners to continue operations. Having Hiveon as a part of my setup will help me maintain profitability during this period.
Conclusion
An unfavorable market drop isn’t the sole disadvantage of the recent Bitcoin halving; there are two more elements contributing to the issue. These factors involve decreased earnings and extra budgeting needs. Nevertheless, the long-term benefits of these Bitcoin halvings typically outweigh these setbacks.
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2024-04-17 19:12