For a long time we have been hearing the opinions of many people about Halving and its possible consequences on the valuation of Bitcoin. However, this time we will focus on some expert opinions on what mining Bitcoin after Halving might entail for miners.
First of all, the most evident thing is that the miners will receive less reward for their effort, since the protocol reduces the reward of the block in half. That is, mining Bitcoin might not be as lucrative if there is no further change in prices or decrease in costs.
Said reward is the amount of cryptocurrency miners receive when they successfully validate a new block. They do this by solving very complex math problems with your mining hardware.
Mining Bitcoin normally has large electricity costs, so they need one way or another to obtain more benefits than expenses to make it profitable.
Background of the approaching Bitcoin Halving
When Bitcoin was launched in 2009, miners were receiving 50 BTC per block. Thus, a total of 10,500,000 BTC was generated before the next Halving in mid-November 2012. There, miners began receiving 25 BTC for each block.
The next Bitcoin Halving occurred on July 6, 2016, when 420,000 blocks were produced and miners started collecting 12.5 BTC for each new block. As you know, this is the current rate. The next Halving will cut that reward in half once again, leaving the reward for each block at 6.25 BTC.
The last Bitcoin Halving is expected to occur sometime in the year 2140, when 21 million Bitcoin are mined, which is the scheduled cap. Once that happens, the miners will stop receiving block rewards, but will retain the remaining source of revenue – the fees paid for the transactions, which they also collect.
Mining Bitcoin today: How is it done?
At this point, most of the Bitcoin mining is done by giants like Bitmain, the renowned China-based company.
Bitmain validates blocks with thousands of extremely powerful and energy consuming machines. These machines are called integrated circuit miners.
They are much more efficient compared to the basic settings used by individual miners. Consequently, mining Bitcoin in large quantities is almost the sole job of mining farms.
What is normally expected after a Halving process is the increase in the price of Bitcoin, since this has historically been the case. Thus, many miners are stimulated by waiting for the future benefit.
This does not take long, since Halving is expected to occur in May, but the reality is a bit uncertain for miners.
Also, it should be noted how the dynamics of the Bitcoin mining industry has changed since the last Halving. Currently, there are more miners than in 2016.
Furthermore, Bitcoin mining has left places like China and have reached countries like Kazakhstan and Iran, due to relatively low electricity costs.
What do the experts say about the expectations of Bitcoin miners after Halving?
Recently, on a CoinDesk podcast, Ethan Vera, CFO Luxor Technologies, gave his opinion on the matter. It is worth mentioning that Luxor Technologies is one of the largest cryptocurrency mining groups in North America.
The fall of last March 12 changed the landscape of many miners while waiting for the returns of the Bitcoin Halving. Many of them responded, but others could not continue because “the benefits were not giving,” according to Vera. The consequence of this event was a significant drop in hashrate.
Given this we can add the opinion of the CEO of Delta Exchange, Pankaj Balani, who explained that the miners did not even expect these circumstances. Instead, they were piling up Bitcoin waiting for its value to rise during Halving.
As this fall occurred, the outlook changed a bit for miners, as it mixes the natural consequences of a halving of their reward with a market crash. Without delving much, it represented loss for many individual miners.
However, Vera also emphasized that those miners who were able to overcome the crisis now have fewer competitors and are positive in a way. Furthermore, with the recent gradual recovery in the price of Bitcoin, many miners remain optimistic about the future after Halving.
Miners mine when it is beneficial for them to do so
Talking about hashrate is important to understand the future of Bitcoin mining. With Halving, the hashrate is expected to be lower. Vera estimates that a drop of 30 hexahashrate will be generated in the short term, but she does not think this is a real concern for Bitcoin.
In terms of broader implications, he estimated that the network will remain largely secure. In May 2019, just a year ago, the hexahash rate was 45, and network security was highly questioned at the time. However, Bitcoin remained for many months.
On the other hand, what Vera does recognize as something that could have more impact is that “many miners are about to be burned financially” With this he refers to the possible effects of the fall of the global economy and the loss of March 12, situations that perhaps many miners cannot bear.
Consequently, many are likely to leave the Bitcoin community.
In summary, market factors will determine who makes money and who doesn’t, there is no real way to fight it. So the profits of miners after Halving will depend on whether the market follows the historical trend or if it varies due to what happens in the world with COVID-19.
That is, the miners are exposed to the risk that things do not go as expected and lose their investment. For this reason, Vera assures that some tools are necessary for the miners to reduce that risk.
“I hope to see more funding for the hashrate to move forward, and for miners to have a more long-term approach, similar to what happens with other industries.”
Ethan Vera, Luxor Technologies.
Many experts talk about hashrate funding, but others talk about cheaper and more capable mining machines. Furthermore, it is important to consider the number of machines that may be available in the market as a determining factor in the overall network hashrate.
However, Vera ensures that Bitcoin miners must focus on how to optimize the value of the produced hashrate. That is, they must answer the question “How can I get more value for the hashrate that I generate?” Especially after Bitcoin’s Halving.
Miners who remain in the market are unwilling to lose and maintain their faith in the historical development of prices after an episode of Halving. Therefore, they remain very alert to what is currently happening with the Halving of Bitcoin Cash.
However, we must take into consideration the response alternatives that miners may have in case things do not go as expected after Halving. The ones Vera mentioned in the podcast are just a few of the possibilities.
Many factors can affect the increase or decrease in mining after Halving, but we consider that one of the most crucial has to do precisely with the development of more efficient machines.