[ad_1]
The fourth Bitcoin halving is almost upon us, and it could hold some very interesting surprises. This halving marks the reduction of the Bitcoin supply subsidy from 6.25 BTC per block to 3.125 BTC per block. These supply reductions occur every 210,000 blocks, or approximately every four years, as part of Bitcoin's gradual, disinflationary approach toward its final capped circulating supply.
The limited supply of 21 million coins is, otherwise THE, fundamental characteristic of Bitcoin. This predictability of supply and inflation rate is at the heart of what has driven the demand for and belief in bitcoin as a superior form of money. Regularly halving the supply is the mechanism by which this limited supply is ultimately implemented.
Halvings over time are driving one of the most fundamental changes to Bitcoin incentives in the long term: the move from miners funded by newly issued coins from the Coinbase subsidy – the block reward – to to dominant financing by revenue from transaction fees. users moving Bitcoin on-chain.
As Satoshi said in section 6 (Incentives) of the white paper:
“The incentive can also be funded by transaction fees. If the output value of a transaction is less than its input value, the difference constitutes a transaction fee which is added to the incentive value of the block containing the transaction. Once a predetermined number of coins enter circulation, the incentive can shift entirely to transaction fees and be completely free of inflation.
Historically, the halving has been correlated with massive appreciation in the price of bitcoin, offsetting the impact of the halving of miner subsidies. Miners' bills are paid in fiat currency, meaning that if the price of bitcoin appreciates, resulting in higher revenue in dollar terms for the lower amount of bitcoin earned per block, the negative impact on the Mining is mitigated.
In light of the last market cycle, with not even a 4x appreciation from the previous all-time high, the extent to which price appreciation will protect miners from the effects of the halving is an assumption that may not always be true. During this next halving, the Bitcoin inflation rate will fall below 1% for the first time. If the next market cycle plays out similarly to the last, with much smaller upward movement than historically seen, this halving could have a materially negative impact on existing mining companies.
This makes the fee revenue that miners can earn on transactions more important than ever, and it will continue to become more critical to their sustainability from a business perspective as block heights increase and halvings successive ones occur. Either royalty revenue must increase or the price must increase at least twice each half in order to compensate for the decrease in subsidy revenue. As optimistic as most Bitcoiners may be, the idea that a doubling of price is guaranteed every four years, in perpetuity, is a dubious assumption at best.
Love them or hate them, BRC-20 tokens and inscriptions have changed the entire dynamic of the memory pool, increasing fees in the range of 0.1 to 0.2 BTC per block before their existence, at the somewhat volatile average of 1 to 2 BTC. in recent times – steadily increasing well beyond that.
The new postman this time
Ordinals present a whole new incentive dynamic for this cycle's halving, which was not present in any previous halving in Bitcoin's history. Rare sats. At the heart of ordinal theory is the fact that satoshis of specific blocks can be tracked and “owned” based on its arbitrary interpretation of the blockchain's transaction history, based on the assumption that specific amounts sent to specific exits “send this seat” there. The other aspect of the theory involves assigning rarity values to specific sats. Each block has a base of parts, thus producing an ordinal. But each block has a different importance for the project. Each normal block produces a “rare” sat, the first block of each difficulty adjustment produces a “rare” sat, and the first block of each halving cycle produces an “epic” sat.
This halving will be the first since the widespread adoption of ordinal theory by a subset of Bitcoin users. There was never an “epic” sat production when there was a material market demand from a large and developed ecosystem. Market demand for this specific sat could end up being valued at absurd multiples of the value of the Coinbase reward itself in terms of fungible-only satoshis.
The fact that a large market segment in the Bitcoin space would value this single coin base significantly higher than any other would incentivize miners to fight for it by reorganizing the blockchain immediately after the halving. The only time such a thing happened in history was in the very first half, when the block reward went from 50 BTC to 25 BTC. Some miners continued to try to mine blocks rewarding 50 BTC in Coinbase after the supply was reduced, and gave up shortly after when the rest of the network ignored their efforts. This time around, the push for reorganization isn't about ignoring the rules of consensus and hoping people will come around to your side, it's about fighting over who is allowed to mine a completely valid block in because of the value that collectors will place on this unique coin base.
There is no guarantee that such a reorganization will actually happen, but there is a very strong financial incentive for miners to do so. If that happens, how long it lasts will ultimately depend on how much this “epic” could be worth in the market to offset the loss of revenue from fighting for a single bloc rather than advancing the chain.
Every halving in Bitcoin history has been a pivotal event that people watch, but this attempt has the potential to be much more interesting than previous halvings.
How an Epic Satellite Battle Could Play Out
In my opinion, this could play out in several ways. The first and most obvious is that nothing happens. For some reason, miners do not judge that the potential market value of the first “epic” mined since Ordinals adoption took off is worth the opportunity cost of wasting energy in reorganizing the blockchain and giving up to the money they could make by simply mining the next block. . If miners don't think the extra premium that ordinal can bring is worth the cost of forgoing moving to the next block, they simply won't do it.
The next possibility is the result of nuanced economic scales. Imagine if a larger-scale mining operation could afford to risk more “lost blocks” by engaging in a reorganization fight for the “epic” sat. The bigger miner with more capital to put on the table can afford to take a bigger risk. In this scenario, we could see some strange reorganization attempts by large miners with smaller operations not even attempting and with essentially minimal disruption. This would happen if miners thought there was a premium they could acquire for ordinal, but not a massive premium that would merit serious network disruption.
The last scenario would be where a market develops auctions for the “epic” sat in advance, and miners can have a clear idea that the value of the ordinal is significantly higher than the market value of the fungible sat itself . In this case, miners can fight for this block for an extended period of time. The logic behind not reorganizing the blockchain is that you lose money, not only do you forgo the reward of mining the next block, but you also continue to incur the cost of running your mining operations. In a situation where the market publicly reports the value of the “epic” sat, miners have a very clear idea of how long they can forego moving to the next block and still make a net profit by reaching the halving. coinbase reward with ordinal. In this scenario, the network could experience substantial disruption until miners begin to approach the point of incurring a guaranteed loss, even if they successfully mine that block without it being reorganized.
Regardless of how things actually play out, this will be a consideration for every halving unless the demand and market for ordinals disappears.
[ad_2]
Source by [author_name]