On May 11, 2020, Bitcoin successfully executed its third block reward halving. Bitcoin halving events usually occur every four years, and the first and the second events took place in 2012 and 2016, respectively. Since miners’ rewards for verifying blockchain transactions are usually trimmed by 50% following a halving event, past events have forced miners to adopt numerous changes to cater for the drops in profitability. What about the recent halving event? How have things unfolded for miners this time around?
One obvious impact of a halving event is the reduced revenues miners receive. To remain profitable, miners are expected to increase their operational efficiencies, and one probable way of doing so is shifting to new mining equipment with more hashes per second and reduced power consumption. According to Ramak J Sedigh, Pouton Mining’s CEO, miners who are still using old generation equipment may be forced out of business unless the price of Bitcoin reaches an all-time high after the May 11 halving.
Price Didn’t Move As Expected
While it was expected that the third halving would have a significant negative impact on Bitcoin prices given that it occurred during the COVID-19 chaos, it was actually eventless. On the contrary, the prices have continued to climb. And because of the BTC price stability, more investors may even be lured to mount for bullish positions in the coming months.
Mining Difficulty Adjustment
BTC blockchain usually adjusts mining difficulty after every 2016 blocks following a drop or rise of the hash rate. So, when some miners close shop due to reduced block rewards, the BTC mining difficulty is also expected to automatically adjust to cater to block interval movements. Over the years, this mining difficulty adjustment has prevented a potential cascade of miner capitulation, and this is what’s expected to happen after the third BTC halving.
So, How Exactly Are Miners Faring and Where Do They Go From Here?
What we have witnessed so far is a mini death spiral scenario. While revenues have been reduced and some miners forced off the chain, there is still some light at the end of the tunnel:
- BTC price has continued to rise.
- The cost of transaction fees is increasing, thanks to network congestion. Higher transaction fees translate to more revenues for miners.
- Power costs are expected to go down with the onset of the monsoon season in China.
Should miners’ revenues reduce further, there are still other steps they can leverage to stay afloat. For instance, they can scale up colocation services and earn extra revenue from hosting and power fees. They can also upgrade their equipment to lower potential exposure to price actions.
Some of these strategies were discussed in the recent online conference organized by Terracrypto on May 19, 2020. They made some valid points that are noteworthy, such as the fact that the hash rate distribution could be another option for increasing mining earnings after the recent Bitcoin halving. This method could allow miners to get higher earnings per tera hash even after the halving. At this point, only the miners will have to deal with this new development. Bitcoin brokers, such as Tenkofx, and traders will continue their daily routine with the hope of taking advantage of the situation.
Even if the profitability of BTC mining reduces after the third halving event, the hash rate may not experience significant hikes. That said, the stability of BTC price in the coming months and the ability to adopt efficient equipment will be key to ensuring that the mining business remains profitable.
This article was curated through CryptoCurrencyNews’ Contributor Program. If you would like to write for us, send us your submission!
Featured image: DepositPhotos © zoomteam