The third Bitcoin halving will reduce the reward per mined block from 12.5 BTC to 6.25 BTC. Miners’ profits depend mostly on this reward.
The third Bitcoin halving is soon to occur and will have a significant impact on the cryptocurrency mining industry. Token Insight analysts recently revealed that almost 97% of miners’ profits come exclusively from the reward per mined block. As the reduction in the reward will directly affect this source of income, it can be predicted that the mining industry will undergo a difficult period in 2020.
However, to understand the impact of this situation, it is first necessary to know the concept of halving. This is a mechanism incorporated into the code of Bitcoin and other blockchains platforms, intending to control cryptocurrency inflation. To achieve this, the tool halves the reward that miners receive every 210,000 blocks. In other words, it decreases the number of bitcoins issued by the Coinbase deposit at the time of processing a block and registering it on the network. The idea is that, at some point, the blockchain stops issuing new bitcoins, thus becoming a limited asset.
It should be noted that two halving events have already occurred in the Bitcoin network and a third one is expected for mid-May 2020, with which the reward of 12.5 BTC per mined block will be reduced to just 6.25 BTC. This reduction directly affects miners, since they have only two sources of income for their activities.
The first, and currently the main one, is the aforementioned Coinbase deposit, which miners receive after their equipment finds the correct solution for the block that they are mining. The second source comes from transaction fees, which are paid by each user when sending bitcoins to another address and then received by miners when they register the block on the network.
According to Satoshi Nakamoto’s plan, when the Coinbase deposit ceases to issue rewards, miners will profit only and exclusively from transaction fees. However, this is currently said to be a difficult project to execute, considering that almost all the profits of miners come from the reward per mined block. The report by Token Insight reveals that only 3.07% of mining revenues are from the fees paid by users.
In this way, it can be concluded that the next halving will be reduced by almost half the income in bitcoins currently earned by the mining industry.
In this sense, the consequences of these reductions were proven in 2019 to the Litecoin community. The altcoin conducted the process in mid-2019, reducing its reward from 25 LTC to 12.5 LTC. Although the price of the cryptocurrency increased by 11% in just 24 hours, within a few months its hash rate dropped by 60%. This fact proves that an important group of miners disconnected their equipment due to low profitability and high costs.
Given these probabilities, it is not surprising that large companies linked to Bitcoin mining have begun to take action on this since last year. For instance, the ASIC miner manufacturing firm, Bitmain, initiated a round of dismissals to reduce its expenditures.
By Alexander Salazar