While many investors in Bitcoin have eagerly anticipated the Halving, hoping for a steep rise in the value of the coins they hold, to Bitcoin miners, the Halving is also a halving of a paycheck, as reward for mining have also been cut by 50%. This is the case with every Halving, and this recent one having been the third such event in the decade-plus history of Bitcoin, the rewards for Bitcoin were far larger in 2009 than they are now. However, halvings and the reduction in rewards, while alarming to those who worry about the motivation behind mining, which ultimately maintains Bitcoin’s security architecture, are a perfunctory aspect of Bitcoin’s monetary policy. Bitcoin arose in 2009 out of the ashes of the 2008 global financial crisis, when bailouts and runaway money printing were de rigeur, and some say only masked the socio-economic issues underpinning the crisis rather than solving them. Bitcoin stands apart from such artificial economic infusions in that its monetary policy stands as is, and will not be changed to ultimately guarantee the currency’s survival.
With the economic upheaval of the coronavirus affecting virtually every economy, not unlike the 2008 financial crisis, this is quite an unfortunate moment to have one’s payout halved as is the case for miners. In fact, because the business of mining was already cost-prohibitive to most individuals and is even more so following the Halving, about one third of Bitcoin mining firms may already be closing up shop and shutting down their machines. Following the Halving this week, the reward for solving the mathematic puzzles that underpin the network was reduced to 6.25BTC per block. Since generally miners work in pools, those are often split profits for an effort that takes a great deal of pricy machinery and electricity. According to Alejandro De La Torre, the VP of Poolin, a mining pool, anywhere from 15 to 30% of the whole BTC network hash rate is already shutting down due to squeezed profits. There are of course differences in the electrical costs of “old generation” mining rigs, for instance Bitmain’s S9, and newer ones, so those mining pools reliant on less efficient equipment will be most affected.
Perhaps the revenue decline in mining will be counterbalanced by a spike in BTC, but ultimately mining is a long game of survival. If ultimately this translates into a survival of the fittest, most efficient miners, with cheapest electricity, then perhaps it is a matter of the evolution of Bitcoin. The mining reward has fallen from 50 in 2009, to 25 in 2012, to 12.5 in 2016, and then ultimately to 6.25 this month (all in BTC).