For miners to stay, they need a Bitcoin use case | Opinion
MAY 20,2024
BY NR.BALOCH
You may also enjoy: Runes is bringing Bitcoin back to life and accessibility | Opinion
The block subsidy will eventually trend to zero and be cut in half every four years, the most recent being on April 19, 2024. It seeks to maintain miners’ profitability up until the point at which transaction fees on the Bitcoin network are sufficient to support it.
Halving reduces the profitability of miners and could lead to consolidation
Miners might increase their market share of blocks mined to offset the decrease in revenue per block. They can accomplish this by purchasing new sites, entities, or equipment, or by updating already-existing equipment. The most advantageous miners to make these kinds of investments are those who have been more profitable thus far and those who have amassed reserves of BTC that have appreciated in value.
https://jambosmodesty.com/iV8shT5MTyXPZpn/95495
On the other hand, some businesses—especially those with greater energy expenses—will lose money and collapse. In order to improve the economics of renewable energy projects by stabilizing energy demand, miners will continue to look for partnerships to provide load-balancing to energy grids (ramping up mining rigs at times of surplus supply and shutting them off at times of excess demand). How miners minimize the cost of their energy and control their
What is the current state of transaction activity?
The price of Bitcoin skyrocketed and transaction volumes surged as more institutional investors sought exposure to the currency after the SEC permitted spot Bitcoin ETFs in the US earlier this year. The Lightning Network, a scaling solution built on top of the Bitcoin blockchain, witnessed a three-fold increase in its open channels over the course of 2023, indicating some development in the network’s utility, according to a recent study from Chainalysis.Bitcoin’s important significance in cross-border transfers is also highlighted in a recent working paper by the IMF. However, transaction fees were, on average, only 6% of miner earnings between the adoption of the ETF in January and the halving in April, according to data from Coin Metrics. Miners continue to be heavily reliant on the block subsidies as a result.
The reason behind the delayed acceleration of transaction fees in Bitcoin can be attributed to its restricted scalability and functionality in comparison to other blockchains. Since Bitcoin isn’t made to support smart contracts, it can’t take advantage of developments like tokenization, decentralized finance, and stablecoin payments, which are driving interest in alternative chains like Ethereum and Solana. Peer-to-peer bitcoin trading and payments have been the main uses for bitcoin to date, but none of these has shown to be a reliable source of income.
Although there are new use cases, miners still need something to stay with.
The introduction of non-fungible token capabilities with the launch of Ordinals inscriptions in 2023 further increased fees. To yet, these developments have resulted in higher transaction fees from trading activity centered around speculative token creation. The addition of these additional features could help Bitcoin overtake other blockchains by facilitating the tokenization of financial markets. Additionally, new layer-2 chains may be able to overcome Bitcoin’s scalability issues and provide overlay functions for the development of defi or tokenization use cases. These chains handle numerous transactions in a batch before settling them as a single transaction on the main blockchain. For these emerging use cases to have a lasting effect, it is imperative that a use case that “sticks” be found prior to the next halving.
Long-term supporters of Bitcoin believe that it will establish itself as a new global reserve asset and function as a genuinely neutral medium of exchange in a global network of artificial intelligence-driven economic agents. The network must be sustained in the interim by miners receiving larger and more consistent transaction payments, which makes the advancement of concrete technological advancements essential.
