The fourth halving of Bitcoin: the inflation rate has dropped to half of gold, and the Bitcoin ecosystem has risen
撰文｜深潮 TechFlow
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On April 20, 2024, Bitcoin officially completed its fourth halving, reducing the block reward from 6.25 to 3.125.
Compared with the previous one, the halving event seems to be a lot colder, and retail investors seem to be more concerned about rushing runes at the first time, as well as complaining about the crazy rise in fees.
In 2023, Bitcoin will truly have an ecology, and the landmark event is the emergence and popularity of inscriptions, because of inscriptions, Bitcoin has truly realized capitalization and has become a standard currency that links other assets, just like Ethereum in the ICO era in 2017.
After the fourth halving, Bitcoin's inflation rate is expected to decrease from about 1.75% to only 0.85%, which is only half of gold, and the direct impact of the halving is far less than the previous ones, but for the crypto industry, the halving is still a landmark event of bull market expectations, and everyone is willing to believe that the halving will bring a bull market, and such expectations and beliefs have also promoted the self-realization of the bull market to a certain extent.
For the thriving Bitcoin ecosystem, this halving may just be the prelude to its development, and it is still in the early stages, with dozens of Bitcoin L2s competing to burst out, we are still early!
What is Bitcoin Halving?
Every time the Bitcoin blockchain produces 210,000 blocks, the block reward received by miners is halved, a process that happens approximately every four years, but the actual time interval between halvings can vary.
The halving event is a key feature of Bitcoin's design, as it is a way to limit Bitcoin's total supply and increase its scarcity, with the goal of avoiding uncontrolled issuance similar to traditional fiat currencies.
The last bitcoin is expected to be available in 2140, after which there will be no additional bitcoins.
The halving of bitcoin has given the entire crypto market a cyclical expectation, and it is widely believed that the halving of bitcoin will bring about a bull market, and of course, many halvings in history are indeed closely related to the bull market cycle.
Historical Bitcoin halving
Previously, Bitcoin had three halvings, with the miner reward reduced from 50 BTC to 25 BTC per block in 2012, then to 12.5 BTC in 2016, to 6.25 BTC in 2020, and then this time, after 2024, the block reward was reduced to 3.125.
First halving: November 28, 2012
Bitcoin blocks where the halving occurred: 210,000
Block reward: 50 BTC to 25 BTC
Bitcoin price on the day of the halving: $12.3 per coin
The peak price in this cycle: $1,175 per coin
Maximum price increase in this cycle: 9552.85%
Second halving: July 9, 2016
Bitcoin blocks where halving occurred: 420,000
Block reward: 25 BTC to 12.5 BTC
Bitcoin price on the day of the halving: $648.1 per coin
The peak price of this cycle: $19,800 per coin
Maximum price increase in this cycle: 3055.08%
Third halving: May 2020
Bitcoin blocks where halving occurred: 630,000
Block reward: 12.5 BTC to 6.25 BTC
Bitcoin price on the day of the halving: $8,560.6 per coin
The peak price in this cycle: $67,775.3 per coin
Maximum price increase in this cycle: 791.71%
Changes in Bitcoin's inflation rate
Bitcoin halved, significantly affecting the inflation rate.
For the first halving, inflation was reduced from 25% to 11.78% after the halving.
In the second halving, inflation was reduced from 8.34% to 4.09% after the halving.
The third halving, inflation fell from 3.58% to 1.77%.
After the fourth halving, Bitcoin's inflation rate is expected to decrease from about 1.75% to just 0.85%.
According to the World Gold Council's report in early 2024, the total supply of above-ground gold in 2023 will be 212,582 tons, and the new gold ratio will be about 1.64%, which means that after the fourth Bitcoin halving, the supply growth rate of Bitcoin is expected to be only about half that of gold, and Bitcoin will become more scarce than gold in terms of scarcity.
The impact of the Bitcoin halving
Bitcoin halving is shaping the economics of Bitcoin, directly impacting its supply, mining rewards, and overall market expectations.
The biggest impact is that for the miner community, the reduction in block rewards means that their mining revenue is halved, which could lead to innovation and consolidation in the mining industry, pushing mining companies to build more efficient mining machines, and miners are also looking for more energy-efficient mining solutions, and only well-capitalized miners can survive the initial impact of the reward reduction.
It is expected that after the halving event, the mining geography will continue to shift, and miners will be forced to find cheaper and reliable energy sources in pursuit of low-cost electricity. Currently, the United States accounts for 40% of mining and Russia 20%.
With the reduction of inflation, the direct impact of the fourth Bitcoin halving is far less than the previous ones, but for the crypto industry, the halving is still a landmark event of bull market expectations, and everyone is willing to believe that the halving will bring a bull market, and such expectations and beliefs have also promoted the self-realization of the bull market to a certain extent.
What happens when Bitcoin is mined?
According to the total amount fixation mechanism of bitcoin itself, it is expected that in 2140, bitcoin will be fully mined, at that time, where will miners go, and who will maintain the security of bitcoin?
In fact, as early as the birth of Bitcoin, Satoshi Nakamoto mentioned in the white paper: "Once a given amount of Bitcoin begins to circulate freely, transaction fees can have an incentive effect." At that time, the Bitcoin network will be completely immune to inflation, the stubborn disease of the traditional economic world. ”
When all bitcoins are mined, miners will no longer be rewarded with BTC for simple mining, but transactions on the Bitcoin network will still continue and will still need to be verified on the blockchain, and miners will still be able to earn income from transaction fees, but this will become a single source of miners' labor income.
However, in 2023, the inscription was born, so that the Bitcoin ecosystem no longer just stays on paper, and in May 2023, when the inscription was crazy, the proportion of miner fees once exceeded 40%.
Now, with the emergence of various Bitcoin Layer2s, the Bitcoin ecosystem is gradually growing, and the future is promising. However, to be reasonable, it is estimated that the people who read this article will not live to 2140, so there is no need to worry about it.
The rise of the Bitcoin ecosystem
In 2023, Bitcoin will truly have an ecology, and the landmark event is the emergence and popularity of inscriptions, because of inscriptions, Bitcoin has truly realized capitalization and has become a standard currency that links other assets, just like Ethereum in the ICO era in 2017.
One of the simplest data dimensions, according to OKLINK data, half of the current daily transactions on the Bitcoin network are about ordinals-related transfers, and to date, ordinals have brought more than $300 million in transaction fees to miners, especially on November 20, 2023, the transaction fees of the Bitcoin network surpassed the Ethereum network for the first time, setting a new record in history.
With the Bitcoin halving, the biggest draw of attention was the launch of the Runes protocol, a new protocol launched by Ordinals founder Casey, which was launched at the beginning of the Bitcoin halving time, which is the Bitcoin block height of 840,000.
Affected by the rune Runes Mint, bitcoin fees have skyrocketed, the block fee reward has reached 20 BTC, and the miners' income is twice as high as before the halving, so many people ridiculed this as a miners' conspiracy.
In response to the surge in on-chain transactions on the one hand, and the limitations of programmability on the other hand, Bitcoin's architecture, the community is exploring avenues such as Ethereum's Layer 2 Rollups to enhance scalability and usability.
As a result, dozens of Bitcoin Layer 2s began to emerge to grab Bitcoin TVL, which further promoted the capitalization of Bitcoin.
In addition, one of the more positive innovations is Babylon, which is committed to unlocking the yield value of 21 million bitcoins, introducing the security mechanism of bitcoin into the POS chain, allowing bitcoin holders to obtain interest-bearing income without transferring assets out of the wallet address, and can also solve the problem of inflation and difficult start of small and medium-sized POS chains, so that miners can also use their bitcoins to protect the POS economy and get rewarded for their security.
In the foreseeable future, whether it is miners, capital VCs, project parties, or even retail investors, there is a need to participate in and expand the ecological narrative of Bitcoin, we are still early!