Written by “Shinobi” via BitcoinMagazine.com
Bitcoin’s fourth halving is approaching, and this one could bring some very interesting surprises. This halving means the Bitcoin supply subsidy will be reduced 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, anti-inflationary approach that caps the final supply in circulation.
Even if the finite supply of 21 million coins is of, the basic characteristics of Bitcoin. This predictability of supply and inflation rates has been central to creating demand and belief that Bitcoin is a superior form of currency. Periodic halving of supply is the mechanism by which that finite supply is finally realized.
Halving over time would support one of the most fundamental changes in Bitcoin incentives in the long term. Miners were funded by newly minted coins from Coinbase subsidies (block rewards), but are primarily funded by transaction fee income from users moving Bitcoin on-chain. Now it looks like this.
In Section 6 (Incentives) of the white paper, Satoshi states:
“Incentives can also be covered by transaction fees. If the output value of a transaction is less than its input value, the difference becomes a transaction fee and is added to the incentive value of the block containing that transaction. Once we start, the incentive could shift entirely to transaction fees and be completely inflation-free.”
Historically, halvings have correlated with large increases in the price of Bitcoin, offsetting the impact of subsidies to miners being halved. Miner invoices are paid in fiat currency. In other words, if the price of Bitcoin increases and the dollar-based income increases even though the amount of Bitcoin obtained per block decreases, the negative impact on mining operations will be mitigated.
Considering the last market cycle, which has not even quadrupled from all-time highs, how much price increases will cushion the impact of miner halving is an assumption that may not hold consistently. During this halving, Bitcoin’s inflation rate will fall below 1% for the first time. If the next market cycle is similar to the last one, with much lower upside than seen historically, this halving could have a significant negative impact on existing miners.
This makes the fee income that miners can collect from transactions more important than ever and will continue to be central to miner sustainability from a business perspective as block heights increase and halvings continue. To compensate for the decline in subsidy revenues, prices must rise at least twice for every increase or halving in toll revenues. Most Bitcoiners are bullish, but the idea that a price doubling is guaranteed to happen every four years forever is a questionable assumption at best.
Love it or hate it, BRC-20 tokens and inscriptions have changed the dynamics of the entire Menpool, pushing fees from a rough 0.1-0.2 BTC per block before its existence to a somewhat volatile average of 1-2 BTC. . Nowadays, the amount is regularly surging to far more than that.
New elements this time
Ordinal numbers bring a very new incentive dynamic to this halving that has not existed in previous halvings in Bitcoin history. A rare sat. The core of ordinal theory is that satoshis of a particular block can be tracked and “owned” based on arbitrary interpretations of the block’s transaction history. blockchain, is based on the assumption that a certain amount is sent to a certain output and is “sent” there. Another aspect of the theory is assigning a rarity value to a particular Sat. Each block has a coinbase that generates an ordinal number. However, each block has different importance to the scheme. 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 is the first since ordinal theory was widely adopted by some Bitcoin users. While there is material market demand from a large and well-developed ecosystem, no “grand” satellites have ever been produced. The market demand for that particular satoshi may be valued at an unreasonable multiple compared to the value of the Coinbase reward itself in terms of fungible satoshis alone.
The fact that a large market segment of the Bitcoin space values that single Coinbase significantly higher than any other Coinbase gives miners an incentive to fight over it by realigning the blockchain immediately after the halving. produces. The only time this has happened in history was during the first halving, when the block reward decreased from 50 BTC to 25 BTC. Some miners continued to attempt to mine blocks within Coinbase after the supply outage for a reward of 50 BTC, but gave up shortly after as the rest of the network ignored their efforts. . The incentive for this realignment is not based on ignoring consensus rules and hoping people will take sides, but because of the value that collectors attribute to that single Coinbase. It’s a fight over who can mine a perfectly valid block.
Although there is no guarantee that such a reorganization will actually occur, there is a significant financial incentive for miners to do so. If that happens, how long it lasts will ultimately depend on how that “epic” satellite makes up for lost revenue from fighting over a single block rather than advancing the chain. It depends on how much it is worth in the market.
Each halving in Bitcoin’s history has been a very important event that people pay attention to, but this one could be much more interesting than previous halvings.
How will the epic satellite battle unfold?
In my opinion, there are several ways this could happen.
- The first and most obvious method is Nothing happens. Whatever the reason, the potential market value of the first “epic” mined since the adoption of Ordinals began, the miners waste energy reorganizing the blockchain and mining the next block. I just haven’t decided it’s worth the opportunity cost of giving up the money I could earn. . If miners don’t think the extra premium an ordinal can earn is worth the cost of giving up on advancing to the next block, they simply won’t do it.
- The next possibility is Delicate economic scale results. Imagine that a large-scale mining operation could afford to risk more “lost blocks” becoming involved in a reorganization struggle over the “epic” satellite. Larger miners who can deploy more capital can afford to take more risks. In this scenario, you might see some weird reorganization attempts by large miners, but smaller operations won’t even be attempted and disruption will essentially be minimal. This is done when miners believe that there is a premium they can earn for ordinal numbers, but not a premium large enough to seriously disrupt the network.
- The final scenario is: Market develops bids for ‘epic’ satellites in advanceAnd miners can clearly see that the ordinal number is valued significantly higher than the market value of the fungible sat itself. In this case, miners may compete for the block for a long time. The logic behind not reorganizing the blockchain is that you are losing money. Not only do you forgo the reward you would get just by mining the next block, you also continue to incur the cost of performing the mining operation. In a situation where the market publicly signals the value of an “epic” SAT, miners will ultimately earn a net profit by achieving post-halving profits, no matter how long they postpone moving to the next block. I have a very clear idea of what can be done. Specify Coinbase rewards by ordinal number. In this scenario, even if miners were to successfully mine this block without regrouping, there could be significant disruption to the network until it begins to approach the point of guaranteed losses.
Regardless of how things actually turn out, This will be a factor to consider for each future halving unless the ordinal demand and market disappears.
Posted by: Zerohedge.com
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