Reduction by Half in Bitcoin Mining Reward

FROM NEW YORK: Friday’s events in the bitcoin ecosystem included a pivotal “halving” of miner rewards for their involvement in powering the cryptocurrency network, a move that has been widely anticipated for its potential to curb the rate of new bitcoin creation and increase the virtual currency’s value. “The fourth #Bitcoin halving has been completed!,” the Binance cryptocurrency exchange publicized on X, formerly known as Twitter. “We’ve reset the countdown – see you in the next halving in 2028.” Bitcoins are digitally minted as miners use computational power to solve intricate puzzles, competing for the chance to add a block to the blockchain and earning bitcoins as a reward for doing so. Since the currency’s inception in 2009, every 210,000 blocks have triggered a halving event, cutting the miner’s bitcoin rewards by half.

Mining a block roughly every ten minutes, these significant industry milestones happen almost every four years. Since May 2020, miners have been earning 6.25 bitcoins per added block, but post-halving, that number has declined to 3.125 bitcoins. Conceived by an individual or group under the name Satoshi Nakamoto in 2008, bitcoin’s halving events are a means of decelerating the rate of bitcoin issuance. This is in alignment with Nakamoto’s maximum cap of 21 million bitcoins, a target set to be achieved by approximately the year 2040.

Supply Regulation

“The main objective of the halving is to regulate the issuance of bitcoins,” noted Matthew Weller, an analyst at City Index, in a commentary preceding the halving. “By reducing the rate of new bitcoin creation, the halving event supports the maintenance of bitcoin’s scarcity and can potentially drive up its value should the demand for it either remain consistent or increase,” he further suggested. Bitcoin’s value has experienced an impressive surge, driven by speculation on the impacts of diminishing supply as well as significant strides towards enhancing its tradeability.

With a 50 percent increase since the outset of the year, bitcoin reached an all-time high of $73,797 last month. However, its price has retreated slightly of late. “This is history-making as it’s the first occasion bitcoin has surpassed its all-time high before the halving event,” remarked Simon Peters, an analyst at eToro, noting the recent retraction in price. Commercial bitcoin mining ventures, which manage thousands of computer systems set up within expansive facilities, are consuming hefty amounts of power, all at significant monetary costs. The halving is therefore crucial as it substantially reduces their primary revenue.

Margins in Decline

As profitability margins encounter compression, bitcoin-oriented entities are investing in state-of-the-art machinery and striving for heightened efficiency, with a particular emphasis on reducing energy expenditures. Moreover, some miners may need to deactivate a portion of their hardware to mitigate expenses, leading to a decrease in bitcoin production, explained Manuel Valente, founder of Coinhouse investment group. “If the price of bitcoin wanes, their profit margins contract even further,” he added during his AFP interview. The halving highlights the fragility of the less robust mining operations and might usher in an era of accelerated industry consolidation, where only the most capable survive, as per some analysts. Following the halving, as of 0030 GMT, bitcoin’s price edged up by 0.7 percent, standing at $63,467.46. — AFP