The Bitcoin Halving: Exploring the Potential for a Unique Outcome This Cycle

Arslan Butt

The Bitcoin 1

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The upcoming fourth Bitcoin halving is generating excitement, with potential surprises on the horizon. This event will halve the Bitcoin block reward from 6.25 to 3.125 BTC, continuing Bitcoin’s controlled supply reduction every 210,000 blocks or approximately four years. This mechanism is integral to Bitcoin’s finite supply of 21 million coins, a core aspect driving its demand and perception as a superior monetary system.

Halvings historically drive a fundamental shift in Bitcoin’s ecosystem: miners transition from earning primarily through new coin issuance to relying more on transaction fees. As noted by Satoshi Nakamoto, the system’s design allows a shift to fee-based incentives post a certain coin circulation, ensuring an inflation-free environment.

Past halvings have typically seen significant price increases for Bitcoin, offsetting the reduced block reward for miners. However, the upcoming halving introduces uncertainties. With the last market cycle showing less than a fourfold increase from the previous high, it’s unclear if future price appreciation will sufficiently compensate miners.

The Bitcoin

With Bitcoin’s inflation rate dropping below 1% for the first time at this halving, miners’ dependency on transaction fee revenues is heightened. They face a critical need for either increased fee revenue or significant price appreciation to sustain their operations. The assumption that Bitcoin’s price will consistently double every four years is increasingly questionable.

The dynamics of Bitcoin’s mempool have been transformed by BRC-20 tokens and Inscriptions, pushing average transaction fees from about 0.1-0.2 BTC per block to around 1-2 BTC, often spiking higher.

A New Element in This Halving: Ordinals

This halving is unique due to the adoption of Ordinal Theory within Bitcoin’s user base. This theory assigns rarity to specific satoshis based on their block origin, creating market demand for these ‘rare sats’. The upcoming halving will produce the first ‘epic’ sat in a market aware of its potential value, potentially leading to unprecedented demand.

This scenario creates an incentive for miners to compete for the ‘epic’ sat by possibly reorganizing the blockchain right after the halving. Such a reorganization would be driven not by a disregard for consensus rules, but by the high value collectors place on that specific coinbase.

While a blockchain reorganization for this reason is not guaranteed, the financial incentive is substantial. The extent of any potential disruption depends on the market value of the ‘epic’ sat, which could justify the cost of competing for a single block.

Possible Outcomes of the Epic Sat Battle

Several scenarios could unfold:

  1. No Action: Miners may decide the potential value of the ‘epic’ sat doesn’t justify the costs of a reorganization, leading to business as usual.
  2. Selective Reorganization Attempts: Larger miners might risk reorganizing for the ‘epic’ sat, while smaller ones avoid it, leading to minimal network disruption. This would occur if the perceived premium for the ordinal isn’t considered highly disruptive.
  3. Extended Competition: If there’s a clear high market value for the ‘epic’ sat, miners might engage in prolonged competition for it. This scenario could lead to substantial network disruption, as miners weigh the profits of acquiring the ‘epic’ sat against the costs of ongoing mining operations and lost block rewards.

The impact of Ordinals and the market’s valuation of ‘epic’ sats will be an essential consideration in future halvings, potentially influencing Bitcoin’s network dynamics unless interest in ordinals fades.