Bitcoin Halving 2024 – Miners predict possible consequences of halved BTC rewards.
Leading Bitcoin mining players have highlighted the need for efficiency to remain profitable and viable after the 2024 halving.
Cointelegraph spoke to several mining organizations to uncover the expected impact of Bitcoin's halving on the industry and the implications for both small and large miners.
The Bitcoin protocol is hard-wired to reduce the amount of BTC given to a miner by adding a block to the ongoing chain. Mining rewards are halved every 210,000 blocks, and while a block is added to the blockchain every ten minutes, the halving occurs every four years.
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The next half, the fourth such event, will reduce the Bitcoin mining reward from 6.25 BTC to 3.125 BTC. The previous halves took place in 2012, 2016 and 2020.
A reduction in mining rewards is a relevant consideration given the implications for profitability and the cash available on hardware and overhead operating costs.
Bitcoin mining efficiency in focus
Bitcoin mining efficiency is set to play a crucial role during the halving. Jaime Leverton, CEO of Hut8, told Cointelegraph that the incident will force miners to increase their efficiency in order to continue mining.
Hut8 is actively deploying purpose-built software to increase the efficiency of its Canadian mining sites. Leverton added that the company hopes to complete an earlier bid to buy four power plants in Ontario.
Its capacity is 310MW, including the former 40MW North Bay mine site, which had to be vacated due to a protracted legal dispute with Validus Power. Hut8 intends to buy the aforementioned power plants from the company after it enters receivership in September 2023.
“We've been mining for a long time and over time the price of Bitcoin is going up and to the right, and we believe that the most prepared miners will be positioned to catch up after the halving,” Leverton explained.
“That's why this year we were strategic in expanding our mining operations inorganically and we were able to increase our capacity through our merger.”
Hut8 completed a high-profile merger with US mining company USBTC in November 2023, increasing its hash rate from 2.6 EH/s to 7.3 EH/s in November 2023.
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Taras Kulik, founder and CEO of Bitcoin mining infrastructure provider SunnySide Digital, takes direct action by highlighting the direct correlation between 50% block rewards and BTC prices and payouts.
“If this is not met by increased Bitcoin prices or transaction fees, the less efficient miners will have to shut down.”
Kulik added that existing mining networks will continue to secure the Bitcoin blockchain as long as the economic incentives to do so compensate them for the risk.
“Half is baked by most of the big mines. For years, they've been expecting and undervaluing half of their valuations,” says Kulik.
Speaking to Cointelegraph, Colin Harper, Luxor's head of research, emphasizes the importance of efficiency and the possibility of small miners dismantling their machines.
“Considering that the price of Bitcoin does not rise and the hash value is a measure of mining profitability, along with it, high-cost and inefficient mining litters the network.”
Harper adds that small miners may see their profitability decrease in 2024 due to the reduced BTC reward. This leads to a common point raised by many analysts – the importance of increasing the value of Bitcoin to increase profitability during and after the halving.
The value of Bitcoin is a critical factor.
Adam Sullivan, CEO of Core Scientific, told Cointelegraph that the outcome of the halving will be entirely dependent on the price of Bitcoin and will directly affect how many miners remain in operation:
“The lower the value of Bitcoin, the more machines will exit the network, and the lower the problem.”
For Core Scientific, this focused on putting machines online to maximize the profitability of its mining fleet. More technically, Sullivan says mining success is determined by their ability to manage the trade-off between total terrace exposure and hardware efficiency relative to the market.
While some miners may be forced to shut down their operations, Sullivan believes the nature of the Bitcoin protocol will always allow mining to survive.
“The Bitcoin network is self-healing and long-lived, always encouraging mining to happen.”
He also said that the network will adjust when some miners leave the industry or turn off their equipment and free up a higher percentage of blocks to reward participants who continue mining.
Leverton echoes these comments, noting that large miners will continue to expand their operations, protect their networks, and if Bitcoin's price has appreciated significantly in the weeks and months since it was halved.
Harper also believes that the mining ecosystem won't be too shocked by the halving and that protocol design will always encourage mining participation:
“There will always be miners with cheaper electricity than others, so as long as Bitcoin has value, someone will mine it.”
In addition, the method of fixing the problem of mining emphasizes the basic purpose of maintaining the mineral incentive as a balancing force.
“That's why it's a difficult adjustment; if Bitcoin doesn't work for most of the miners, they'll turn off their servers, the hashrate will slow down, the problem will be the same, and then it'll be more profitable for the rest of the miners to mine,” Harper explained.
Kulik offers a more optimistic view of the arrival of Bitcoin Ordinals in 2023 and their impact on transaction fees and developer activity. Coupled with the scarcity of new Bitcoins, 2024 could see Bitcoin mining continue to be a profitable and sustainable economic activity.
Forget about the Bitcoin death spiral
Previous halving cycles have also seen headlines highlighting the potential for Bitcoin's so-called death spiral. This hypothetical scenario involves a drop in profitability and subsequent drop in hash rate as miners are forced to leave the network.
Due to the fact that Bitcoin mining takes two weeks to adapt to a change in hash rate, doomsayers have previously predicted that the network would be bogged down by long block times and unable to process transactions in a timely manner.
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Speaking to Cointelegraph in December 2023, Blockstream CEO Adam Buck insisted that such a scenario was unlikely. The cryptographer who pioneered the proof-of-work algorithm implemented in the Bitcoin protocol reflects on “risk concepts” in the past.
He added that these conditions have never played out and that the economic data indicates that in 2024 miners may be in a better position.
“Mining profitability has more than doubled this year. So if halved they are still in better shape than they were in January and the hash rate has increased all that time.
In addition, advanced mining companies have done in-depth calculations to estimate the potential effects of a halving, which includes historically reduced hash rates and some mining.
“The people who come out of education contractors are very efficient. Miners with 35 to 40 joules per terahash device are twice as efficient,” he explained.
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He also argued that the value of Bitcoin, which was over $40,000 by 2023, has more than doubled compared to the increase in hashrate. The latter believes that the next half-decline could happen without hashrate, which would simply reduce mining profitability to levels seen in mid-2023.
“Maybe we'll have a continuous increase in total hash rate in the halving.”
2023 will go down as a testing year for the Bitcoin mining sector, as the hash rates increase in the first half of the year, some miners will be locked in depressed BTC prices.
Big players with healthy balances and reserves have been able to continue operating, while some have increased their holdings in the 18 months since previous cycles, maintaining bitcoin's halving and historical value.
According to the experts, 2024 will largely depend on Bitcoin price performance and mining efficiency.
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