- With Bitcoin mining, the miners get rewarded for verifying a Bitcoin block. The Bitcoin mining reward started at 50 BTC per block and has continued to halve every four years.
- The total number of Bitcoin supply is expected to be mined somewhere in the 2140s. As miners’ reward continues to plummet, how does it impact towards the Bitcoin mining profitability?
- In a particular Twitter thread, some analysts had argued that the upcoming halving could also trigger a huge selloff by giant miners whose aim is to monopolize the mining industry.
Bitcoin halving ranks as one of the most important events in the history of Bitcoin and cryptocurrencies. It has always been accompanied by a lot of buzzes and a price rally. The historical performance of Bitcoin forms part of the key metrics driving most Bitcoin predictions in 2020 and post Bitcoin halving.
Will history repeat itself? There is no guarantee about that but one would agree that there is a strong correlation between Bitcoin halving and a huge price rally.
While Bitcoin halving might have the potential to impact its price in the long-term, there are a lot of factors in-play influencing the current market actions. A good example is the current global pandemic impacting the global market.
The majority of the crypto community is more interested in knowing how this global pandemic would influence the value of their investment portfolio, while there may be a handful of them who are inquiring about how the upcoming halving could impact the custodian of the Bitcoin network; the Bitcoin miners.
Historical Halving And The Mining Industry
Bitcoin mining is one of the most important aspects of the Bitcoin network. Mining is a mechanism that facilitates the addition and recording of transactions to the Bitcoin’s distributed public ledger, called the Blockchain.
Usually, miners get rewarded for verifying a Bitcoin block. Bitcoin mining rewards started at 50 BTC per block. On November 28, 2012, the first Bitcoin halving took place which resulted in reducing the mining reward to 25 BTC. The second halving that took place on July 9, 2016, drove down the mining reward even further to 12.5 BTC.
Mining a Bitcoin block involves very complex calculations, this is so because the mining computer generates a random SHA-256 hash which must be equal or lower than the targeted hash before the block could be verified by the network. This process consumes a huge amount of electricity, which incurs huge costs for miners.
The most anticipated Bitcoin 2020 halving is underway, which will mark the 3rd halving since Bitcoin’s genesis block. This year’s halving has been making major headlines in the cryptocurrency community as it is coming at a time when the crypto market is already gaining mainstream adoption. The year’s halving will see miners’ rewards being halved to 6.25BTC.
According to calculations by some, the total number of Bitcoin supply is expected to be mined somewhere in the 2140s. Within this period, miner’s rewards will continue to halve every 4 years. Taking into account the huge cost of mining operations and the continued reduction in mining rewards, What then happens to the profitability of mining operations with each Bitcoin halving? Hang on, let’s find out.
How The Upcoming Bitcoin Halving Could Impact the Miners
In about 30days, somewhere around 11th may, the 2020 halving will come into effect. Miners are already gearing to the challenges that might accompany the upcoming event. As with past halvings, many believe that miners might not be adversely affected. However, history shouldn’t always be taken as a definitive indicator of future actions.
Looking back into the past, the previous Bitcoin halving has always been accompanied by a steep upward movement a few weeks before the halving. The scenarios accompanying the upcoming 3rd Bitcoin halving is quite different compared to the 2012 and the 2016 events.
The recent fall in the global market has taken a negative toll on the entire crypto market. This has to an extent deterred the usual pre-halving rally. Steve Tsou, the CEO of RRMine Bitcoin Cloud Mining platform believes that the upcoming halving will have a huge negative impact on miners profitability:
“The halving in 2020 will have great impacts on Bitcoin miners, miners with low mining efficiency will be forced to pause and re-evaluate their business operations…”
Ramak J Sedigh, founder and CEO of Plouton Mining, shares a similar sentiment with Steve: “The upcoming halving will force the small operators and those running S9s out of the market, except in the unlikely scenario that BTC reaches a new all-time high by the end of May.”
Where things stand today, Ramak’s last statement above appears to be a far-fetched claim. However, it’s safe to assume that miners’ profitability will be impacted negatively at least for the short term. Most such predictions revolve around the likelihood of small miners being kicked out of business. This has created a wave of upgrades across giant mining companies for purchasing of new mining equipment.
With the adoption of digital mining rigs that consume cheaper electricity, it is safe to say that most big mining companies are better prepared for the adverse effects of the upcoming halving compared to their smaller counterparts. While the fight continues for market dominance by larger miners, the upcoming halving might have tilted the balance a little in favor of the larger players.
The 3rd halving could also trigger a huge selloff by giant miners whose aim is to create a monopoly in the mining industry. In a recent news update in Twitter, a few popular cryptocurrency analysts were seen arguing that miners could dump Bitcoin to the $2000 – $2200 price range in a bid to wade out competitors.
The Bottom Line for Bitcoin Mining
As with every prediction; only time will tell the truth. Should there be a huge rally post-Bitcoin halving, miners won’t have to worry so much about mining profitability. A surge in BTC prices in the long term will ensure that mining stays profitable. Miners have always viewed mining operations as a long-term investment, instead of a vehicle for short-term gains.