Bitcoin "double happiness": halving narrative launches and the ecosystem ushers in a new era

Unconsciously, with the constant changes of the "atypical bear market", the "halving" narrative that has never faded in the crypto world is gradually approaching - the current block height is less than a year away from the remaining halving time of Bitcoin, and the halving time is expected to be April 28, 2024, when the block reward will drop from 6.25 BTC to 3.125 BTC.

History always has similar rhymes, but it is not a complete repetition. As the new round of halving cycle comes to an end, will 2023-2024 be a simple re-engraving of 2019-2020?

01
Bitcoin’s “Halving” Narrative

We can briefly understand the basic knowledge of Bitcoin halving: Bitcoin's mechanism design determines that the role of miners is extremely important. It is the cornerstone for maintaining the operation of the entire system transactions. At present, miners' income mainly comes from two parts - block rewards and handling fees.

The initial block reward is 50 bitcoins, and the rule is to halve it every four years. It has been halved three times so far, and now it is 6.25. The next halving will be in 2024. It will continue to halve like this, and by 2140, there will be no more block rewards for Bitcoin.

However, the transaction fee will always exist, so after each round of halving, the block reward will gradually decrease or even approach zero. In the future, the income of miners will become very simple, with only transaction fee rewards.

When the block reward approaches 0, the miners’ income model will change completely:

As the block reward gradually decreases until it approaches zero, the importance of transaction fees will become increasingly higher, until they eventually become the only source of income (this is one of the reasons why miners are obsessed with large blocks, because the larger the block, the more transactions can be packaged in the same amount of time, and the more transaction fees will be charged).

Although it is logical to make up for the loss of block rewards by increasing the handling fee like a seesaw, excessively high handling fees are not conducive to the promotion and use of Bitcoin:

- Miners need sufficient interest incentives to maintain the network and provide value;

- Users use the network to create value and cannot afford high transaction fees;

The feedback fine-tuning of Bitcoin's entire economic system has always been in such an uninterrupted contradiction, but it has always been able to achieve dynamic equilibrium through full game between all parties.

However, in the context that Bitcoin has undergone three halvings, the block reward has been reduced to 6.25, and the number of mined blocks has reached more than 19 million, in fact, many situations and many things have reached the point of view of changing and reconsidering.

02
New thinking behind BRC20: BitcoinFi

From Ethereum’s “London Upgrade” in 2021, to “The Merge” in 2022, and the “Shanghai Upgrade” that was just completed this year and the next round of “Cancun Upgrade”, the major progress of the Ethereum ecosystem and the thriving ecosystem of borderless innovation have almost occupied the main media coverage.

In sharp contrast, the voice at the Bitcoin ecosystem level is rarely widely discussed in the market . Even users in many industries have felt that the development of Bitcoin may be at a standstill. This is almost the most true reflection of the fact that the development process of the Bitcoin network is gradually being ignored by the market.

It was not until this year when the new wave of "BitcoinFi" was launched by Ordinals that all this began to change.

Especially as a new Bitcoin NFT experiment based on Ordinals, the recent BRC20 narrative has begun to bring some completely different variables to Bitcoin, which has been developing towards the attribute of "payment currency" for more than a decade (although there have been debates about payment and storage during this period), and even began to show signs of an ecosystem similar to Ethereum.

At the same time, various controversies about "innovations" such as BRC20 are actually constantly sparking heated debates . Some people think that adding programmability to Bitcoin is useless, and colored coins from N years ago have already sentenced this path to death.

In fact, since 2020, everyone seems to have gradually accepted Bitcoin's positioning as "digital gold", and forgotten the payment attributes of "global currency" that once caused heated debate in the industry and even forks. It seems that upgrades in technological applications are not that important.

But it may not be suitable for the present moment. In fact, with the reduction of block rewards after each halving cycle of Bitcoin , coupled with the continuous expansion of the scale of the entire Bitcoin network, the ecological incentives required to maintain the secure operation of the Bitcoin network are objectively increasing, which requires gradual expansion beyond block rewards.

The renovation of "BitcoinFi" represented by Ordinals is, to some extent, timely - at least the new ecological possibilities enabled by programmability can be explored to find an alternative and new way to incentivize miners after the block rewards continue to decrease in the future.

Just on May 3, Crypto Fees data showed that Bitcoin's single-day transaction fees exceeded US$3.37 million, the highest since May 21, 2021. Compared with about US$370,000 on April 23, it soared more than 9 times in 10 days, and on May 4, it continued to exceed US$3.5 million.

Miners can be said to be making a lot of money, which also shows that in addition to block rewards, active ecological innovation and application attempts will greatly promote the pace of transaction fee rewards gradually replacing block rewards .

After all, after Ethereum switched to PoS, it still has annual inflation rewards and a sufficiently large internal circulation of ecological transaction fees to rely on; even Monero, which "mined" the block rewards last year and still uses PoW, although miners' income is officially based on transaction fees, it still retains a fixed block reward of 0.6 XMR.

As the new round of halving cycle draws to a close, Bitcoin also needs to explore more in advance for future changes and gain margin. This should also be the meaning of the renovation of "BitcoinFi" after several years.

03
Bitcoin’s “Changes and Constants”

Of course, from another perspective, although most mainstream DeFi is still in the Ethereum ecosystem, the Bitcoin network is still evolving.

In particular, the previous Tarpoot upgrade brought new combinations and possibilities to Bitcoin in terms of performance, privacy and even smart contracts, as well as more complex programming capabilities that have been gradually explored and added recently.

In general, in addition to the well-known "Lightning Network" innovation at the Layer 2 level, Bitcoin Layer 2 such as side chains, Rollups, and state channels are also flourishing:

Things like the RGB protocol, Slashtags (which serves the identity accounts, contacts, communications, and payments of the Bitcoin Lightning Network ecosystem), the Impervious browser that integrates numerous P2P services, the Taproot-based asset protocol Taro, the Lightning Token OmniBOLT, etc. are all worth looking forward to.

We are now at the end of this halving cycle, with less than a year left before the next Bitcoin halving. This may be the first (or second) time that most practitioners and investors in this round will personally witness and experience the Bitcoin halving "event."

Especially with the Bitcoin block reward dropping to 3.125, the total number of Bitcoins mined has exceeded 19.35 million. We may be getting closer to the real BTC "mining tail release era", which is a new variable that we have rarely considered in the past decade of block reward-dominated cycles.

History always has similar rhymes, but it does not always repeat itself. Therefore, the new halving cycle starting in 2024 may be the biggest difference from 2016 and 2020. From this perspective, this is also the biggest uncertainty of various innovations such as "BitcoinFi".