• By Amy Castor and David Gerard
  
  
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Bitcoin mining earns you half as many bitcoins every four years. The reward for mining a block of transactions started at 50 bitcoins in 2009. It dropped to 25 bitcoins in 2012, 12.5 in 2016, and 6.25 in 2020. Sometime in May 2024, the block reward will drop to 3.125 BTC.

“Halvening” is a silly bitcoin neologism for when the block reward — the amount of newly minted bitcoin a miner receives every time they mine a new block — halves.

To understand the “halvening,” you need to know about two things:

1. The practical problems for bitcoin miners when half their income suddenly vanishes;
2. A whole mythology of inane gibberish.

Mining on half the income

The halving is a serious problem for bitcoin miners.  

We expect an apocalypse of miners. They will try to sell any bitcoins they’ve been holding in reserve just to survive.

The cost of the electricity to guess enough random numbers to mine one bitcoin is currently around $26,000. After May, the price of bitcoin will need to be at least double this ($52,000) for mining to break even. There’s also the costs of mining computers (“rigs”), facilities, and paying executives huge salaries.

If the price of bitcoin falls below $50,000, expect miners to just shut down their hardware. Some may keep mining if their electricity is super-cheap — such as the now-illegal bitcoin mines that still exist in China. Miners around the world will switch off and throw away older inefficient mining rigs.

As well as a reward of fresh new bitcoins, the successful miner of a block also gets all the transaction fees. We calculate that the transaction fee per block was around $4,000 on February 20. Miners can also make money from questionable deals for not mining bitcoins.

The price of bitcoin may be pumpable with judiciously applied tethers — if the miners are on sufficiently good terms with the rest of the broader crypto casino. Previous halvings have been preceded by price pumps and lots of talk of bitcoin going to the moon. Expect to see “finance experts” making inane and baseless price predictions.

The real problem is that bitcoin mining is a terrible business to be in and gets worse every four years — which is why the actual businesses tend to structure themselves in ways that look more like a stock market scam.

There can only ever be 21 million bitcoin memes

Bitcoin discussion is promotional memes all the way down, and it always has been.

One big promotional meme is that there will only ever be 21 million bitcoins. That’s if the bitcoin software never changes. We don’t hear this meme so much anymore.

Satoshi Nakamoto wanted to issue new bitcoins but limit the total amount to 21 million to make it “scarce.” So instead of each block granting 50 BTC forever, the number would halve every four years. By 2140, the issuance would be zero and bitcoin miners would have to rely on transaction fees for their income.

Why would you want the total issuance of a general currency to be limited to a particular quantity? That comes from the political ideas behind bitcoin — a variant of Austrian economics that wants a rigid gold standard where the currency is firmly pegged to gold in a vault. 

The world went off the gold standard in the 1930s, with the last vestiges disappearing in 1971, because it just didn’t work anymore. But there’s no bad or obsolete idea that someone won’t decide “What if that was actually a good idea?”

So the pre-bitcoin cypherpunks got high on completely incorrect conspiracy theories and spent a couple of decades trying to do a “gold” standard digitally.

Quite a lot of the deep weirdness of bitcoin is because it starts from this wrong economic premise and extrapolates from it in the face of all real-world evidence. 

Pumping the market

The bitcoin market is incredibly thin and easy to manipulate. We’re seeing $2,000 swings in the price over a single day. That’s not a stable market.

This is tremendous fun for Wall Street traders, who love volatility —  and now they have cash-create ETFs and cash-settled derivatives of the alleged price of bitcoin, all using actual money under proper regulation. Plus, they don’t ever have to do anything so gauche as to touch a bitcoin.

Traders will create a complex thicket of derivative financial products on two flies crawling up a wall, and in bitcoin they have particularly demented flies to bet on.

The real dollars headed into the bitcoin system are interested in gambling on things that have less and less to do with actual bitcoins and the parameters of the blockchain.

Number go up

The dumbest promotional myth about the “halvening” is that the halvings cause the bitcoin price to go up! Because there’s less bitcoins now. With less bitcoins to fill the demand, there will be a shortage!

But there have always been large bitcoin holders with more than enough coins to flood the market, if only there were buyers. The supply of available bitcoins does not depend on mining output.

In the previous halving in 2020, the world was going nuts from COVID lockdown. Any supposed effects of the halving were just lost in the noise.

The current supply is a fresh 900 BTC per day in the form of block rewards. When 450 BTC of that disappears starting in May, existing whales already have a lot more coins they don’t want to just dump and risk crashing the price.

Miners were already holding coins while the price was going down through early 2022.

An even wilder myth is that the halving will come as a shock to the market, which can’t possibly have priced it in already.

While bitcoin is pretty solid evidence against strong versions of the efficient market hypothesis — that markets of any sort automatically incorporate all new information as soon as it exists — the crypto market isn’t so information-inefficient that it’ll be surprised by something that’s been scheduled since 2009.

All kinds of things can and do send the bitcoin price up and down. Most of them are shenanigans.

The various myths exist solely to convince fresh retail suckers — the most valuable bitcoin users — to get in quick while they can. The real price of bitcoin is what the next sucker will pay for it. 

What if bitcoin did change, though?

The bitcoin code will never change!

Unless enough stakeholders want it to. 

The last serious attempts to change the parameters of bitcoin were SegWit, which would allow a few more transactions in a block, and Bitcoin Cash, which would make blocks much larger and perhaps make the bitcoin blockchain a bit less hopelessly clogged. SegWit was eventually adopted, but Bitcoin Cash failed because they couldn’t talk the exchanges into giving them the “BTC” ticker.

None of these disputes were technical — it was all the politics of who got to make money.

As the bitcoin reward decreases, practical behind-the-scenes discussions of changing the code are becoming more prominent. 

Miners need real dollars to pay their outrageous electricity bills. Power companies won’t accept tethers. The miners would very much like the issuance of bitcoin to change so that it no longer halves. 

The reward per block is defined by two lines of code. A simple change and the reward could just as easily be thirty, sixty, or a hundred bitcoins per block.

Coiners will tell you that the code won’t change because it’s against the miner’s self-interest or the community would reject such a change. There are indeed those who would reject it — but their hold has been weakening since bitcoin finally failed hard as currency around 2017.

Bitcoin started in libertarianism. But approximately 100% of current crypto users are in it for the money. Crypto market participants subscribe to the bitcoin ideology only as long as it works for marketing.

Like conservatives and reactionaries in the wider world who don’t understand markets and condemn doing things that get you customers as “woke capitalism,” ideological bitcoiners will loudly decry as corrupt and unacceptable the actions of the actual existing crypto markets full of people who are in it for the money. Because they’re doing capitalism wrong, apparently.

So the biggest threat to the bitcoin ideology is a sufficient threat to the flow of cash.

Nobody cares about the blockchain

The point of cryptocurrency is to create financial instruments that are obscured from regulators. The crypto markets are happy to trade centrally controlled tokens like XRP or most defi tokens on this basis.

When the bitcoin blockchain lost a lot of hashpower in the Bitcoin Cash wars in late 2017, the time between blocks could be over an hour. The crypto world barely noticed — because all the action was market traders on the exchanges in a bubble.

We would like to wish the bitcoin miners a very pleasant go broke and vanish. But we expect there will still be enough mining to keep the blockchain moving, even if very slowly.

The “halvening” only matters as a publicity stunt for bitcoin — a reason to get bitcoin into the headlines that isn’t Sam Bankman-Fried going to jail.