Bitcoin halving one week away: Why the halving is a boring defense

The Bitcoin halving event that the Bitcoin community has been looking forward to for many years finally took place in a low-key manner last week. Now that it has been a week, its impact is indeed almost negligible.

At about 12:48 EST, Bitcoin's 420,000th block was mined and sealed by F2Pool, one of the largest mining pools, with a reward of 12.5 BTC. This marked the completion of Bitcoin's second halving and the first time miners received reduced rewards.

According to the Bitcoin code, the halving event is when the mining subsidy for miners is reduced to half of the original amount. When Bitcoin founder Satoshi Nakamoto first released Bitcoin, the Bitcoin reward was 50 BTC per block. Three and a half years later, when the 210,000th block was mined, the Bitcoin reward was automatically halved to 25 BTC. This was the first halving. Now the 420,000th block has been mined, and the second halving of Bitcoin has occurred.

This halving is how Bitcoin controls its total supply. When the last Bitcoin is released in 2140, the total market value of Bitcoin will reach 21 million, but due to attrition, it is impossible for so many to actually circulate.

Heading into the halving, predictions were made about what kind of reaction this event would cause, with some suggesting that the price of Bitcoin would drop immediately, while others predicted some much worse scenarios.

But the results are clear, at least in the first week after the halving, the halving was just another day in the life of Bitcoin.

Bitcoin price unaffected

One of the main predictions for Bitcoin before the halving was that the price of Bitcoin would fall because traders hoarded Bitcoin before the halving and sold it after the halving, causing supply to exceed demand.

For example, Petar Zivkovski, director of operations at WhaleClub, predicts that some savvy investors — institutions, professional traders and other sophisticated Bitcoin traders — will sell their Bitcoin holdings around the halving.

The day before the halving, bitcoin prices fell nearly 10 percent, from $674 to $618, according to CoinDesk’s USD Bitcoin Price Index (BPI). Although it happened earlier than expected, it also marked an expected sell-off.

However, since the halving, the price of Bitcoin has been ranging between $637 and $673, or within a 5% range.

One possible reason is that smart investors believe that the price of Bitcoin can be higher, and the new supply of Bitcoin to the market is bought, offsetting the selling of smart investors.

Oregon Mines founder Terrence Thurber initially told CoinDesk he believed bitcoin could reach $900, double its $445 peak before a sharp rally in June.

He said: "After the halving, the price of Bitcoin will normally rise because the supply decreases and the demand increases."

If 25 BTC are released to the market every ten minutes and the Bitcoin price is $660 and remains stable, then the demand is also 25 BTC every ten minutes. If the Bitcoin price remains relatively stable after the halving, because the supply drops to 12.5 BTC, miners will not sell all of these Bitcoins, and investors will sell their holdings, which will offset the problem of reduced new supply.

A similar situation also occurred on November 28, 2012, when Bitcoin's price was $12.25. In the following month, Bitcoin rose by about $1. However, in January of the following year, the price of Bitcoin began to rise, reaching $230 on April 9.

Although Bitcoin prices have always fluctuated, the immediate price reaction to halving is relatively delayed.

Impact of computing power

Although prices remained stable, miners were directly affected.

When Antpool sealed block 419,999, they received a reward of 25 BTC, worth about $16,250 at the time. A few minutes later, when F2Pool sealed block 420,000, they received a reward of 12.5 BTC, worth about $8,125.

Miners obviously saw their revenue cut in half, which was expected. But before the halving, it was expected that the Bitcoin hashrate would drop significantly. And the results show that although the hashrate did drop, it only dropped from 1,600 petahash/second to 1,400 petahash/second, which is not bad compared to the fluctuations in the hashrate in the past few months.

Genesis Mining CEO Marco Streng said that when it comes to bitcoin mining, efficiency is what matters.

He explained: “For us, the halving is not a big surprise, we have been prepared for this event. The most important rule of mining is: if you are the most efficient miner, you can continue to mine. Others need to stop, and the miners who continue can get a bigger piece of the pie.”

Also, even if income drops from $16,250 to $8,125, it’s not nearly as bad as before, and Bitcoin will have been in the $200 to $300 range for most of 2015.

According to data collected by Blockchain.info, from January to November 2015, mining revenue was even lower than it is today, during which time Bitcoin hashrate continued to increase, from approximately 300 PH/s to 500 PH/s over the same period.

However, mining has changed significantly since then.

In early 2015, miners were still using 28nm chips, such as Bitmain's Antminer S3, which provided about 450GH/s of computing power per device. Today's Antminer S9 can provide 14TH/s of computing power per device.

At this point, miners today have to employ hardware that is far more efficient than before, which is what allows miners to still get some returns even if their revenue is cut in half.

Eric Mu, CMO of HaoBTC, which accounts for 5.5% of the total network computing power, explained that most miners' costs are in hardware. Now they have more efficient equipment, as long as electricity is cheap, they can continue to make profits.

Finally, for the surviving miners who earned $5,000 to $7,500 per block in 2015 ($200-300 at BTC), $8,125 today is still relatively better.

Bitcoin weathers the storm

Bitcoin has now undergone two halvings, which should theoretically have a shocking impact on the Bitcoin network and price.

Overall, however, these two events suggest that halvings can be pretty boring. While miners are affected, there is no larger outflow than usual monthly at current prices.

While Segregated Witness code improvements could solve transaction delays and open the door to technologies like the Lightning Network, such solutions are still on the way. Companies like OpenBazaar are continuing to launch what may become the first promising consumer apps.

Additionally, new financial products like SolidX and the Winklevoss brothers’ proposed bitcoin exchange-traded fund (ETF) continue to seek regulatory approval to be listed. Ultimately, bitcoin continues to move forward.

Although the halving event was a particularly boring day for Bitcoin, it once again showed that Bitcoin has overcome a risk and continued to move towards becoming a real-world tool.