Bitcoin mining earns you half as many bitcoins every four years. The reward for mining a block of transactions started at 50 bitcoins in 2009. It dropped to 25 bitcoins in 2012, 12.5 in 2016, and 6.25 in 2020. Sometime in May 2024, the block reward will drop to 3.125 BTC.
“Halvening” is a silly bitcoin neologism for when the block reward — the amount of newly minted bitcoin a miner receives every time they mine a new block — halves.
To understand the “halvening,” you need to know about two things:
- The practical problems for bitcoin miners when half their income suddenly vanishes;
- A whole mythology of inane gibberish.
Mining on half the income
The halving is a serious problem for bitcoin miners.
We expect an apocalypse of miners. They will try to sell any bitcoins they’ve been holding in reserve just to survive.
The cost of the electricity to guess enough random numbers to mine one bitcoin is currently around $26,000. After May, the price of bitcoin will need to be at least double this ($52,000) for mining to break even. There’s also the costs of mining computers (“rigs”), facilities, and paying executives huge salaries.
If the price of bitcoin falls below $50,000, expect miners to just shut down their hardware. Some may keep mining if their electricity is super-cheap — such as the now-illegal bitcoin mines that still exist in China. Miners around the world will switch off and throw away older inefficient mining rigs.
As well as a reward of fresh new bitcoins, the successful miner of a block also gets all the transaction fees. We calculate that the transaction fee per block was around $4,000 on February 20. Miners can also make money from questionable deals for not mining bitcoins.
The price of bitcoin may be pumpable with judiciously applied tethers — if the miners are on sufficiently good terms with the rest of the broader crypto casino. Previous halvings have been preceded by price pumps and lots of talk of bitcoin going to the moon. Expect to see “finance experts” making inane and baseless price predictions.
The real problem is that bitcoin mining is a terrible business to be in and gets worse every four years — which is why the actual businesses tend to structure themselves in ways that look more like a stock market scam.
There can only ever be 21 million bitcoin memes
Bitcoin discussion is promotional memes all the way down, and it always has been.
One big promotional meme is that there will only ever be 21 million bitcoins. That’s if the bitcoin software never changes. We don’t hear this meme so much anymore.
Satoshi Nakamoto wanted to issue new bitcoins but limit the total amount to 21 million to make it “scarce.” So instead of each block granting 50 BTC forever, the number would halve every four years. By 2140, the issuance would be zero and bitcoin miners would have to rely on transaction fees for their income.
Why would you want the total issuance of a general currency to be limited to a particular quantity? That comes from the political ideas behind bitcoin — a variant of Austrian economics that wants a rigid gold standard where the currency is firmly pegged to gold in a vault.
The world went off the gold standard in the 1930s, with the last vestiges disappearing in 1971, because it just didn’t work anymore. But there’s no bad or obsolete idea that someone won’t decide “What if that was actually a good idea?”
So the pre-bitcoin cypherpunks got high on completely incorrect conspiracy theories and spent a couple of decades trying to do a “gold” standard digitally.
Quite a lot of the deep weirdness of bitcoin is because it starts from this wrong economic premise and extrapolates from it in the face of all real-world evidence.
Pumping the market
The bitcoin market is incredibly thin and easy to manipulate. We’re seeing $2,000 swings in the price over a single day. That’s not a stable market.
This is tremendous fun for Wall Street traders, who love volatility — and now they have cash-create ETFs and cash-settled derivatives of the alleged price of bitcoin, all using actual money under proper regulation. Plus, they don’t ever have to do anything so gauche as to touch a bitcoin.
Traders will create a complex thicket of derivative financial products on two flies crawling up a wall, and in bitcoin they have particularly demented flies to bet on.
The real dollars headed into the bitcoin system are interested in gambling on things that have less and less to do with actual bitcoins and the parameters of the blockchain.
Number go up
The dumbest promotional myth about the “halvening” is that the halvings cause the bitcoin price to go up! Because there’s less bitcoins now. With less bitcoins to fill the demand, there will be a shortage!
But there have always been large bitcoin holders with more than enough coins to flood the market, if only there were buyers. The supply of available bitcoins does not depend on mining output.
In the previous halving in 2020, the world was going nuts from COVID lockdown. Any supposed effects of the halving were just lost in the noise.
The current supply is a fresh 900 BTC per day in the form of block rewards. When 450 BTC of that disappears starting in May, existing whales already have a lot more coins they don’t want to just dump and risk crashing the price.
Miners were already holding coins while the price was going down through early 2022.
An even wilder myth is that the halving will come as a shock to the market, which can’t possibly have priced it in already.
While bitcoin is pretty solid evidence against strong versions of the efficient market hypothesis — that markets of any sort automatically incorporate all new information as soon as it exists — the crypto market isn’t so information-inefficient that it’ll be surprised by something that’s been scheduled since 2009.
All kinds of things can and do send the bitcoin price up and down. Most of them are shenanigans.
The various myths exist solely to convince fresh retail suckers — the most valuable bitcoin users — to get in quick while they can. The real price of bitcoin is what the next sucker will pay for it.
What if bitcoin did change, though?
The bitcoin code will never change!
Unless enough stakeholders want it to.
The last serious attempts to change the parameters of bitcoin were SegWit, which would allow a few more transactions in a block, and Bitcoin Cash, which would make blocks much larger and perhaps make the bitcoin blockchain a bit less hopelessly clogged. SegWit was eventually adopted, but Bitcoin Cash failed because they couldn’t talk the exchanges into giving them the “BTC” ticker.
None of these disputes were technical — it was all the politics of who got to make money.
As the bitcoin reward decreases, practical behind-the-scenes discussions of changing the code are becoming more prominent.
Miners need real dollars to pay their outrageous electricity bills. Power companies won’t accept tethers. The miners would very much like the issuance of bitcoin to change so that it no longer halves.
The reward per block is defined by two lines of code. A simple change and the reward could just as easily be thirty, sixty, or a hundred bitcoins per block.
Coiners will tell you that the code won’t change because it’s against the miner’s self-interest or the community would reject such a change. There are indeed those who would reject it — but their hold has been weakening since bitcoin finally failed hard as currency around 2017.
Bitcoin started in libertarianism. But approximately 100% of current crypto users are in it for the money. Crypto market participants subscribe to the bitcoin ideology only as long as it works for marketing.
Like conservatives and reactionaries in the wider world who don’t understand markets and condemn doing things that get you customers as “woke capitalism,” ideological bitcoiners will loudly decry as corrupt and unacceptable the actions of the actual existing crypto markets full of people who are in it for the money. Because they’re doing capitalism wrong, apparently.
So the biggest threat to the bitcoin ideology is a sufficient threat to the flow of cash.
Nobody cares about the blockchain
The point of cryptocurrency is to create financial instruments that are obscured from regulators. The crypto markets are happy to trade centrally controlled tokens like XRP or most defi tokens on this basis.
When the bitcoin blockchain lost a lot of hashpower in the Bitcoin Cash wars in late 2017, the time between blocks could be over an hour. The crypto world barely noticed — because all the action was market traders on the exchanges in a bubble.
We would like to wish the bitcoin miners a very pleasant go broke and vanish. But we expect there will still be enough mining to keep the blockchain moving, even if very slowly.
The “halvening” only matters as a publicity stunt for bitcoin — a reason to get bitcoin into the headlines that isn’t Sam Bankman-Fried going to jail.
Amy Castor is an independent reporter, focused on cryptocurrencies and NFTs.
Her stories have appeared in Foreign Policy, Al Jazeera, Artnet News, MIT Technology Review, Business Insider, CoinDesk, Decrypt, The Block, Bitcoin Magazine, Forbes, and Modern Consensus.
Amy is a nocoiner, meaning she doesn't hold any crypto assets.
David Gerard writes the cryptocurrency and blockchain news site Attack of the 50 Foot Blockchain. He is the author of the 2017 book Attack of the 50 Foot Blockchain: Bitcoin, Blockchain, Ethereum & Smart Contracts and the 2020 book Libra Shrugged: How Facebook Tried to Take Over the Money.
David does not hold a position in any crypto asset or cryptocurrency or blockchain company.
Here’s Amy’s Patreon and here’s David’s. For casual tips, here’s Amy’s Ko-Fi and here’s David’s.
62 Comments
Back in 2017 there was a NZ build blockchain called NAV that i used to see a lot of people mining using a raspberry PI computer, so it was likely that.
NAV price crashed after the 2017 peaks and it was removed from the big exchanges, but 1 NAV is still worth 0.04 US cents if you can find a place to sell it.
This is possibly the most biased anti-bitcoin-pro-shitcoin article you could have chosen on this topic. I'm not angry, just disappointed, interest.co.nz. It's completely wrong on a number of levels and your credibility is out the window. It's bordering on misinformation.
This is possibly the most biased anti-bitcoin-pro-shitcoin article
Amy and David are definitely not "pro-sh*tcoin". In fact diving into that world is where both of them first cut their teeth as crypto skeptics. They confront the narrative of "99% of crypto is garbage" with "100% of crypto is worse than garbage". They write and argue in absolutes. But unfortunately they never accept the opportunity to debate with their counterparts.
Don't worry about it. The beauty of Bitcoin is "winning the argument" about it is irrelevant.
If you think Bitcoin is the real deal, map out your value/investment model and buy.
If you think Bitcoin is a con or just greater fool theory in action, don't buy.
Then we can just observe who comes off better overtime financially.
And to be fair many people who are savvy investors (like buying Nvidia at the right time etc) will do fine without BTC.
The facts are that Bitcoin has been the best performing financial investment of the past 15 years. Will that continue? Who knows. Make your model and place your money accordingly.
"Quite a lot of the deep weirdness of bitcoin is because it starts from this wrong economic premise and extrapolates from it in the face of all real-world evidence."
Were Bitcoin truly based on a 'wrong economic premise' wouldn't its current value be $0, and not $100,000 NZD?
Say whatever you want about Bitcoin being memetic or mystical in nature. The fact is it has demonstrably proven incentive networks can coordinate outcomes at the software layer.
There is not a single resource backing the value of BTC,
Incorrect. BTC is backed by energy and thermodynamics. BTC is digital energy. As Michael Saylor describes, with this technology we can deliver any amount of power, at any frequency, anywhere in time and space, with nearly zero friction. It is smarter, faster, and stronger than mechanical energy, chemical energy, or electrical energy.
Care to elaborate on "with this technology we can deliver any amount of power, at any frequency, anywhere in time and space" or "it is smarter, faster, and stronger than mechanical energy, chemical energy, or electrical energy."
It's actually just a distributed ledger based on a Merkle tree. I think you're are getting a bit carried away.
Sometimes things take time to understand. The reference to 'digital energy' is explained in this MIT lecture by Saylor.
https://www.youtube.com/watch?v=dXix6OIU1hw
However, it's not as complicated as you're probably thinking. But think of BTC as a store of value for energy (proof of work) used to mine it in the first place. You can answer that energy is used to produce all things. Biggest difference is leakage.
“’But how is [Bitcoin] digital energy; how do you get it back to being energy?’ The answer is, I send a billion-dollar block of it to Tokyo, I run it through an exchange … I convert it back into yen and I take the yen and I buy electricity from the Tokyo Power Company.”
— Michael Saylor
The energy is expended during the process of validating and adding transactions to the blockchain it is not "stored" in anyway. In the above example,if you started out with x amount of energy you would be left with x minus the energy expended for the transactions. No energy has been stored or transferred. In this regard this is NO different to a fiat currency, there is a certain amount of energy used to maintain the infrastructure, transactions, banking institutions etc.
Like I said before, it's just a distributed ledger based on a Merkle tree. As opposed to a centralized ledger.
No energy has been stored or transferred. In this regard this is NO different to a fiat currency, there is a certain amount of energy used to maintain the infrastructure, transactions, banking institutions etc.
Yes yes. This is a typical response, but you're missing the whole point of 'Bitcoin as digital energy'. Now I know you probably don't have time to listen to Saylor's lecture. ChatGPT has done that for you.
https://eightify.app/summary/blockchain-and-cryptocurrency/bitcoin-the-…
Good god man all you're doing is sending us links to rants from a batty owner of a failing legacy software company! How about instead of replying with some rubbish from your number one Michael Saylor, enlighten us in your own words how the energy expended to maintain the block chain is any different from the energy expended to maintain the fiat currency system?
Good god man all you're doing is sending us links to rants from a batty owner of a failing legacy software company! How about instead of replying with some rubbish from your number one Michael Saylor, enlighten us in your own words how the energy expended to maintain the block chain is any different from the energy expended to maintain the fiat currency system?
Yes. You're not the first to suggest Saylor is a lunatic.
The energy is wasted to create some token as "proof of work". In the end no different to setting a barrel of petrol alight, and then typing the date, time and barrel's unique serial number into a text string and trying to flock that off as a unique token/currency.
J.C. you sucked up the bitcoin bro propaganda really well and you confuse energy with entropy, the measure of a system's thermal energy per unit temperature that is unavailable for doing useful work.
BTC is an energy destruction machine (it's useful output is a number and a huge amount of entropy). It will quickly become obsolete by something that will be doing useful work.
It's current value is merely defined by the belief of individuals like you.
J.C. you sucked up the bitcoin bro propaganda really well and you confuse energy with entropy, the measure of a system's thermal energy per unit temperature that is unavailable for doing useful work.
I accept this. But what is 'useful work'? Making new iPhone models? That is happening already.
If we look at blockchain / cryptocurrency from a bullish standpoint, an implementation which alleviates the many shortcomings of BTC would be a great start to something useful.
The whole industry is hyped up about reducing transaction costs and automation of business processes with smart contracts & distributed apps, which have a lot of potential, if they prove useful enough to be adopted in the mainstream.
Until then these are tech experiments with an uncertain future. For BTC it is hard to see any future at all, given its shortcomings and its inability to change & address these.
Personally, I'm not as interested in Bitcoin compared to other crypto commodities/incentive designs.
For the sake of argument, though, I would say the value based premise is 'security'. Security for the underlying commodity. Security for anchoring other protocols to its foundation of computational stone.
The resource backing is the 500 or so terra hashes that currently hold together that security as a service.
Not really - people still buy star sign charts and tarot card readings
Some believe the earth is flat and some that a mythical god is coming back to save them from something
Some even believe in life after death - how weird is that
So a belief that if you buy bitcoin, or some derivative thereof, you have acquired an asset that will hold its value or that you can sell at a profit (and a fat one hence the strong buy impulse) is not that far away from other nonsensical beliefs - and traders love beliefs based on emotion - thats how lots of beauty products, diamonds and similar baubles are sold and at fat profits
So a belief that if you buy bitcoin, or some derivative thereof, you have acquired an asset that will hold its value or that you can sell at a profit
Correct. Store of Value is a key property that BTC proponents believe it has. Similar to gold. But different to fiat currencies.
and store of value it does not have - huge variations in price even over a few years is NOT a demonstration of something that is a store of value
On the contrary. The variation in fiat currencies of BTC is price discovery. It does not refute that BTC or any other object - digital or not - is a store of value or prove that BTC is not a store of value.
I'm not making a claim about whether Bitcoin is or is not valuable ultimately. I personally believe Ethereum has more effectively designed for a perpetual security budget.
What I am saying is Bitcoin is a clear prototype for how we can design other incentive networks. Bitcoin could fall over, but others can learn from it to deliver value beyond security as a service. You need only look at Bittensor to find another, demonstrably working example of these incentive dynamics (Proof of Work for AI model meritocracy, rather than arbitrary calculation).
I find their writing self-absorbed and quite often juvenile, but not convincing. A good friend occasionally goes into anti-crypto rants and his ideas seem to stem from a similar reservoir of thought. Those thoughts are not necessarily wrong but they're not going to be tested if you have a Jihadist mindset and won't listen to different points of view.
That is in part true, but unrealised at the time what it also achieved was taking governments away from a finite, constrained resource model to the myth of infinite growth. Something that continues to this day.
The reality is I would suggest that there is a need for a universal trading medium that represents all material resources (now quantifying that would be a big ask, and likely cause a war or two!) and thus restrain all economies to a finite model. With a limit of 21 million, BTC wouldn't cut it.
You're right that it promoted unlimited growth, and therein lay the problem - it was inconvenient, as is any finite "resource" limiting development be it oil, copper, silicon or otherwise.
As for an underwriter of value, there are 100,000,000 Satoshis in a BTC. In theory, 21 million BTC = 2.1 quadrillion Satoshis, or if you wanted to decimalise it, 21 trillion decasatoshis. There's an estimated 37 trillion to 85 trillion dollars worth of currency in circulation currently, so in theory BTC could fit the bill.
I don't like the idea of a few hoarders with 50 BTC becoming the new bosses of the economy if BTC became the global currency, and I'd guess neither would most people, but in reality that's what's happening the in world already.
It's a good point but why and how is this going to happen? You're making an assumption that Bitcoin replaces fiat currencies.
Furthermore, you talk about concentration of monetary power. That is the situation we have now and a key reason why the Global South is pissed. It's even having negative consequences for NZ, even though we're high up the monetary totem pole.
The gold standard was abandoned due to its limitation to cope with economic growth ie if economical output is growing strongly (think resources, services,etc.) the supply of money becomes limited very quickly as every new dollar would need to be backed by an ever growing amount of gold, leading to massive deflation, which makes it harder to trade goods & services and ultimately leads to a decline in investments with the final consequence of financial depression.
This would be self-regulating in a way but in a world where population growth was rampant and only 1/2 of the earth was somewhat colonised it did seem a good idea to uncouple the process of money creation from the physical limits of gold production.
Having some inflation is considered a good thing due to the fact that it incentives people with money to invest it in order to get a return and thus protect & improve the value of their money over time.
The gold standard was abandoned due to its limitation to cope with economic growth ie if economical output is growing strongly (think resources, services,etc.)
Yes. However, can you point to a fiat currency that has survived throughout the ages? You will not be able to.
Maybe you're suggesting that the latest incarnation of fiat - from Bretton Woods - is the pinnacle of monetary evolution.
The dumping of the gold standard is interesting as with the perspective of the lens of history, we can opine that the authorities who chose to do it lacked the vision and understanding of the consequences (really not much different from authorities today). It can be seen that they did it for essentially selfish reasons, but they should have been expected to understand that there would be global ramifications (the gold standard was an international agreement) that was beyond their ability to manage, control or even envisage all the consequences.
With our understanding today, there is clearly a need to understand that resources are finite, and need to restrained and rationed, and from that basis a global trading medium based on a universally identified limit linked to those resources would be useful. This however would be seen by many as a return towards the gold standard.
I think people forget about the compounding nature of that 1-3% inflation target. Go to the inflation calculator and look at what a dollar (or pound) in the year your father was born is now worth. In my case it's over $90. That's 1.5 generations of inflation, and it's only going to get faster. Whereas we live in a time of phenomenal technological advances that should be making us more productive as a whole; therefore we should have actually experienced overall deflation as measured by something like the CPI.
It's all proof of work.
You either learn what money is or listen to shit like this. Either way, no one can do the work for you. Myself and several others have provided numerous articles and resources over the last 5+ years and we don't have to try and convince you.
https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdec…
I don't see anywhere in this article where it addresses the point of deflation. I refer to nightstalker's comment above.
The article does address the point that it will not be a medium of exchange until the opportunity cost drops. But then fails to continue to the obvious conclusion that was reached all those years ago, that deflation causes that opportunity cost. This is therefore a real problem (for Bitcoin as anything other than a traded commodity for investors) unless you think that the magic arbitrary number of 21 million is the exact right amount for all future economic growth.
Question:
From the article:
"If the price of bitcoin falls below $50,000, expect miners to just shut down their hardware."
So how is it possible, that during the long crypto winter miners still operated ?
Sadly this article is has a few inconsistent, incorrect statements that needs to be corrected to be credible.
I think the part about mining is not reflecting the fact that miners are evolving, they that are chasing cheaper electricity by using electricity that is currently being wasted and helping areas where it’s not (initially) cost effective to produce electricity. This ability is due to the fact miners can very quickly scale up and down, turn off their equipment depending on demand, this is not something that traditional IT datacentres can cope with so easily.
What about small scale, if you remove the point of trying to make money, you can use the excess heat of mining to heat your house, if you are going to turn a heater on, might as well get ‘something’ back for expending the electricity even if it’s not profit. Maybe a small mining rig could be used to keep your hot water at a slightly higher temperature meaning you would only have to pay to raise it to your required temp or heat green houses etc.
I think if you are stuck in rigid thinking, you don’t see the options, it’s the same for Bitcoin.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.