We are approaching the fourth Bitcoin halving, and this has the potential to produce some interesting surprises. This halving represents a decrease in Bitcoin supply support from 6.25 BTC per block to 3.125 BTC per block. These supply reductions occur every 210,000 blocks, or roughly every four years, as part of Bitcoin's gradual, contractionary approach toward the final supply set in circulation.
The limited supply of 21 million coins is average, if not so the, the founding feature of Bitcoin. This ability to predict the rate of supply and inflation has been at the heart of what has driven demand and belief in Bitcoin as a superior form of money. Cutting the regular supply in half is the mechanism by which this limited supply is eventually activated.
Halvings over time are the driver behind one of the fundamental shifts in Bitcoin's long-term incentives: the move from miners being funded by newly issued coins supporting the coin base – the block reward – to being funded mainly by transaction fee revenue from users transferring Bitcoin on-chain.
As Satoshi said in Section 6 (Incentives) of the white paper:
“The incentive can also be financed through transaction fees. If the value of the output of a transaction is less than the value of the input, the difference is the transaction fee which is added to the incentive value of the block containing the transaction. Once a pre-determined number of coins enter circulation, it can turn The incentive is entirely down to transaction fees and is completely free of inflation.
Historically, halving has been associated with a massive rise in the price of Bitcoin, offsetting the impact of miners' subsidy halving. Miners are billed in fiat currency, which means that if the price of Bitcoin rises, resulting in greater dollar income versus a lower amount of Bitcoin earned per block, the negative impact on the mining operation will be mitigated.
In light of the recent market cycle, with no 4x rally from the previous all-time high, the degree to which higher prices will protect miners from the effects of the halving is an assumption that may not be consistently true. In the next halving, Bitcoin's inflation rate will fall for the first time below 1%. If the next market cycle is similar to the previous one, with much less upward movement than we have seen historically, this halving could have a material negative impact on existing miners.
This makes the fee revenue that miners can collect from transactions more important than ever, and will continue to become more important to their sustainability from a business perspective as block height increases and successive halvings occur. Either toll revenues must increase, or the price must rise by a minimum of two times for each halving in order to compensate for the decrease in subsidy revenues. Despite the optimism of most Bitcoin users, the idea that the price is guaranteed to double every four years, in perpetuity, is a questionable assumption at best.
Love them or hate them, BRC-20 tokens and tokens have transformed the entire memory dynamic, pushing fees from somewhere in the ballpark of 0.1-0.2 BTC per block before they existed, to a somewhat volatile average of 1-2 BTC. Lately – it regularly rises well beyond that.
New worker this time
The arrangement introduces a very new incentive dynamic for this halving that has not existed in any previous halving in Bitcoin's history. Nader sat down. At the heart of the blockchain theory, Satoshis from particular blocks can be traced and “owned” based on their arbitrary interpretation of the blockchain’s transaction history, based on the assumption that specific amounts are sent to specific outputs “send those Saturdays” there. The other aspect of the theory is assigning rarity values to specific moons. Each block has a coin base, thus producing an ordinal. But each block differs in its importance to the chart. Each normal block produces an “uncommon” sat, the first block of each difficulty adjustment produces a “rare” sat, and the first block of each half cycle produces an “epic” sat.
This halving will be the first since ordinal theory was widely adopted by a subset of Bitcoin users. There has never been an “epic” produced when there was physical market demand for it from a large, evolving ecosystem. The market demand for this specific seat could end up being valued at a ridiculous multiple of what the coinbase reward itself is valued in terms of mere fungible satoshis.
The fact that a large segment of the market in the Bitcoin space would value this single coin base dramatically higher than any other creates an incentive for miners to fight over it by reorganizing the blockchain immediately after the halving. The only time something like this happened in history was during the first halving, when the block reward dropped from 50 BTC to 25 BTC. Some miners continued to attempt to mine 50 BTC blocks in the coinbase after the supply was cut off, and gave up shortly after when the rest of the network ignored their efforts. This time, the impetus for reorganization is not about ignoring consensus rules and hoping people will come to your side, but rather fighting over who is allowed to mine a perfectly valid block because of the value that collectors will attribute to that single coin base.
There are no guarantees that such a reorganization will actually happen, but there is a very large financial incentive for miners to do so. If that happens, how long it will last ultimately depends on how much value this “epic” can be worth in the market to pay for the lost revenue from fighting over a single block instead of progressing up the chain.
Every halving in Bitcoin's history has been a pivotal event for people to watch, but this spin-off is likely to be more interesting than previous halvings.
How an epic satellite battle could end
There are several ways this can happen in my opinion. The first and most obvious way is for nothing to happen. For whatever reason, miners don't see the potential market value of the first “epic” mined since Ordinals went live to be worth the opportunity cost of wasting energy reorganizing the blockchain and giving up the money they could make just by mining the next block. If miners don't think the extra bonus that ordinal can bring is worth the cost of forgoing moving to the next block, they simply won't do it.
The next possibility is a result of microeconomic metrics. Imagine that a large-scale mining operation could afford to risk more “lost blocks” in the reorganization battle over “Saga”. A larger miner with more capital to put on the table can afford to take greater risks. In this scenario, we may see some isolated attempts at reorganization by larger miners who are not even trying to do so, with minimal disruption. This might happen if miners think there is some bonus they can get for the rank value, but it's not a huge bonus worth serious network disruption.
The final scenario would be if the market develops bids for the “epic” early on, and miners can have a clear picture that the ordinal value is valued significantly higher than the market value of the instance itself. In this case, miners may fight over that block for a long period of time. The logic behind not reorganizing the blockchain is that if you are losing money, you are not only giving up the reward for mining the next block, but you will also continue to incur the cost of running your mining operations. In a situation where the market publicly indicates how valuable an “epic” is, miners have a very clear idea of how long they can forego moving to the next block and still end up making a net profit by achieving the post-halving Coinbase reward with Ordinal. In this scenario, the network could experience significant outages until miners begin to approach the point of incurring a guaranteed loss even if they successfully mine that block without reorganizing it.
Regardless of how things actually go, this will be a factor to consider for each halve going forward unless the demand and market for ordinal numbers disappears.
