Cryptocurrencies that adopt the Proof of Work (PoW) mechanism, such as Bitcoin, come with an […]
Cryptocurrencies that adopt the Proof of Work mechanism, such as Bitcoin, come with an important economic attribute called halving. This mechanism automatically adjusts the output of tokens at regular intervals. Halving has an impact on the price of crypto assets, miner income, network hashrate, and more. Since the launch of Bitcoin, it has already undergone three halvings, and the fourth halving is expected to occur in May 2024. Other PoW cryptocurrencies also have similar mechanisms.
So, what does halving mean for miners? Firstly, small-scale miners with low hashrates will face double pressures. On one hand, as mining competition intensifies, the cost of participating in mining increases. On the other hand, halving directly reduces miners’ rewards by half. This forces some small miners to exit as profit margins shrink, and this part of hashrates will go to large mining pools, which further concentrate hashrates and may affect network decentralization and security.
Halving events influence price movements both in the short term and long term. In the short term, prior to a halving, miners and speculators may snap up more coins to prepare for a reduced supply, which will boost the price. When the halving arrives, however, a certain degree of pullback is likely because the expectations often already materialized. Before the first halving in 2012, for instance, the BTC price surged to $11.
Secondly, as mining income decreases for miners on public chains like Bitcoin, these PoW networks tend to circulate value through transaction fees, gas fees, etc., to maintain the motivation within the mining community. This will drive the materialization of more blockchain applications based on these public chains, especially in the areas of financial services, entertainment gaming, digital assets, etc., which, in turn, generates more transaction fees.
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