Bitcoin BTC +2.90% ’s latest halving is now complete, seeing miners’ block subsidy rewards drop from 6.25 BTC to 3.125 BTC.

Bitcoin’s fourth halving occurred at block height 840,000, ushering in a new epoch for the network. Hopes of many in the community that the halving would land on the memeable date of 4/20 failed to materialize for the U.S. market as miners appeared to ramp up their hash rate on the network ahead of the subsidy drop.

Bitcoin halvings are programmed to occur automatically every 210,000 blocks — roughly every four years. Once a halving event occurs, miners receive 50% fewer bitcoins as a subsidy reward for every block of transactions they mine and add to the blockchain. However, they continue to earn additional transaction fee rewards for each block mined as normal.

There have been three halving events in Bitcoin's history before today, reducing its block subsidy inflation from 50 BTC to 25 BTC in 2012, then to 12.5 BTC in 2016 and 6.25 BTC at the last halving on May 11, 2020.

This latest halving means that, on average, miners will now produce around 450 BTC in total per day compared to 900 BTC previously. In the long term, there will only ever be 21 million bitcoins in existence.

The halving events will continue until the last bitcoin is expected to be mined around the year 2140. After this, miners will only earn from transaction fees.

The industry reacts — 'miners are about to win their bet'

Today’s halving, sometimes referred to as "the halvening," is perhaps the most significant for several reasons, according to Kraken's Head of Strategy Thomas Perfumo.

“Firstly, after April 2024, nearly 95% of all bitcoins that will ever exist will have been mined. Furthermore, the annualized growth of bitcoin’s supply each year will soon fall to less than 1% for the first time,” he said.

While miner revenues have risen this year amid the increase in bitcoin’s price, the extent of the impact the halving has on less efficient mining operations and, hence, the overall network metrics following the drop in subsidy remains to be seen.

Binance CEO Richard Teng told The Block that the reduction in subsidy rewards could see some miners exiting the market, temporarily impacting the network’s processing abilities before the next difficulty adjustment.

“The Bitcoin network has shown resilience in the face of such challenges in the past. Advancements in mining technology and strategies, as well as potential adjustments in mining difficulty, could mitigate the impact of reduced miner participation,” Teng said. “Additionally, some miners may opt to switch to mining altcoins or explore alternative revenue streams within the crypto space, which could help maintain a balance in the overall mining ecosystem.”

“Some miners are anticipated to face increased pressure due to the reduced block rewards, which could force less efficient companies out of the market. This could lead to greater centralization of mining power among larger, more financially robust entities,” Bitfinex Head of Derivatives Jag Kooner said.

“However, this shift also presents an opportunity for innovation and efficiency improvements within the sector. Miners might explore new regions with cheaper energy sources or invest in more efficient mining technology to maintain profitability. We've also seen a lot of miners moving supply (potentially selling or using it as collateral) to allow for liquid cash flow in preparation of upgrading their machinery,” Kooner added.

VC firm Framework Ventures also weighed in.

"If past bitcoin halving cycles are any indication of the future, the impact of the upcoming halving might not become apparent until more than a year, or possibly even 18 months later,” co-founder Michael Anderson suggested. “That said, this is the first cycle an all time high has been reached before a halving, and so it's entirely possible that bitcoin halving market trends might be changing as more and more institutional money enters the market."

U.S. spot bitcoin exchange-traded funds began trading in January this year and are certainly a differentiating factor this time around, generating over $12 billion in net inflows to date.

“During this halving cycle, miners have been selling less bitcoin on exchanges, indicating a more bullish stance amid price surges and increased accessibility driven by ETF inflows,” Adrian Fritz, Head of Research at 21Shares, which offers one of the ETFs alongside Ark Invest, said.

Meanwhile, Ledger CTO Charles Guillemet is particularly optimistic about the cycle ahead. “This 2024 halving cycle strongly differs from the previous ones given the SEC’s spot bitcoin ETF approvals added substantial demand for bitcoin, driving the price to an all-time high in March 2024,” Guillemet told The Block.

“Thanks to this unprecedented demand, and if the bitcoin price remains relatively consistent where it is now, miners won’t have to unplug their machines and sell their bitcoin savings to survive post-halving. In other words, miners are about to win their bet!,” Guillemet added.

Miners turn to new Bitcoin ecosystem activity as transaction fees become increasingly important

Transaction fees have historically been a relatively small percentage of the reward received by Bitcoin miners compared to the block subsidy. However, with renewed activity on the Bitcoin blockchain this cycle — particularly from Ordinals-related activity — and the subsidy value halving, transaction fees will be increasingly important for Bitcoin miners going forward.

“The upcoming halving will have a multifaceted impact on the Bitcoin miners by reducing block rewards and shifting profitability and operational costs,” Fritz added. “Miners may seek refinancing options to navigate this shift and maintain operations, and as block rewards diminish, transaction fees will become the primary revenue stream for miners — indicating a shift in the overall Bitcoin economy.”

“This year’s halving is unique in that it comes amid a series of other significant events in the Bitcoin and wider crypto ecosystem,” Binance CEO Teng said. “In addition to the ETF breakthrough, which has spurred institutional interest and participation, another major current in crypto today is the boom of the Layer 2 and DeFi activity on the Bitcoin network, fueled by the popularity of the Ordinals protocol and Bitcoin inscriptions.”

The Bitcoin Ordinals protocol, launched in January 2023 by Casey Rodarmor, offers a way to store and trade digital content on Bitcoin. By using satoshis, the smallest units of bitcoin, users can inscribe NFTs, BRC-20s (fungible tokens similar to Ethereum’s ERC-20s) and other arbitrary data directly onto the Bitcoin blockchain, with each piece becoming a unique tradeable asset.

“This halving is also unique because of ordinals and ETFs. ETFs lead to more inflows. Ordinals give more revenue to miners from fees,” Bob Bodily, CEO and co-founder of Ordinals marketplace and launchpad Bioniq, said. “Because of the inflow and more consistent fee market, this time we won’t see as big of a hash rate drop as typically seen during halvings.”

Additionally, a new fungible token standard for Bitcoin called Runes was launched at the halving, offering a more efficient solution than the UTXO bloat caused by the existing BRC-20 minting process. UTXOs (unspent transaction outputs) represent a specific amount of bitcoin received by a user but not yet spent.

“This halving is very special because it coincides with the release of the Runes Protocol, a standard for fungible tokens on Bitcoin,” Leonidas, co-founder of Bitcoin Ordinals explorer Ord.io, told The Block. “The timing is no coincidence. The Runes Protocol will stir up a significant amount of on-chain activity that will increase Bitcoin’s network fees which will help offset the decrease of the miner reward from the halving.”

Alexei Zamyatin, co-founder of BOB, a hybrid Bitcoin Layer 2 solution, said this halving epoch would demonstrate growing collaboration between miners and Bitcoin Layer 2 projects, with miners seeking additional revenue and Layer 2s seeking to harness Bitcoin’s security.

“Miners will continue to look for more revenue and will be incentivized to bootstrap new Layer 2 Bitcoin projects, because the more successful use cases built on Bitcoin, the more miners are able to make as each halving dwindles their rewards,” Zamyatin added.

Jesse Shrader, co-founder and CEO of Lightning Network data provider Amboss, said more mining pools were likely to integrate the Lightning Network after the halving to lower their payout thresholds and waiting times.  

“Excitement is growing on alternative uses for the Bitcoin blockchain, including BRC-20 2.0, Ordinal Inscriptions, Runes and Taproot Assets. These uses create upward fee pressure, but only one is close to being ready to be Lightning compatible to avoid high fees: Taproot Assets,” Shrader added. “Last halving, miners competed heavily to inscribe a special message into the halving block and now that competition is expected to grow with the concept of 'epic sats' commanding an extreme premium among Ordinal enthusiasts.”

"The Bitcoin community has become much more open-minded to new ideas during this cycle, and we’re seeing a bigger appetite for Bitcoin-adjacent tech in the VC space as more and more qualified teams start to build Layer 2 infrastructure," Framework Ventures’ Anderson said.