An important event happened this week for Bitcoin - it’s 3rd ever halving!
On May 11th at block #630,000, the reward for miners fell, as intended, from 12.5 BTC to 6.25 BTC per block.
This brings the annual issuance rate down to ~1.8%.
While the price dipped ~12% heading into the halving, it’s since seen a gradual recovery and is now relatively flat on the week.
While price is clearly important, how has the network fared since the reduction in new supply? Let’s dive into the data and find out.
Among all of the stakeholders within Bitcoin, miners are clearly the most affected by halving events.
At this stage in Bitcoin’s life, the revenue they earn from block rewards significantly dwarfs the revenue that they earn from transaction fees.
As expected, the 50% decrease in the block reward resulted in a roughly equivalent decrease to their total revenue.
However, while the % of miner revenue derived from transaction fees was expected to rise as a result of the halving, the recent uptick has sizable.
In the 7 days leading up to the halving, the average % of miner revenue from fees was ~4.2%.
As of today, we’ve seen that quadruple to a current level of 17.2%. This is a high not seen since January 2018.
What’s the cause of this?
Perhaps there was an increase in the number of transactions? That would surely drive more revenue from transaction fees.
As seen in the chart above, this has not been the case. What is evident, however, is a rise in the average transaction fee.
In the 7 days leading up the halving, the average fee was ~$2.38.
As of today, we’ve seen that more than double to reach a current cost of $4.91 per transaction.
This is a high not seen since June 2019. What’s going on here?
Due to the reduction in miner revenue, the main concern going into this event was that smaller and / or less profitable miners would suddenly become unprofitable as their revenue took a hit.
If a miner’s profit margin is 30% and their revenue suddenly drops 50%, the potential problem is obvious.
Due to this, some miners did turn off their machines, which both lowered the hashrate and also weakened Bitcoin’s overall network security. Is there any reason to actually be concerned about this though? Not really.
While this makes for a good talking point amongst critics, it’s less of a problem than they make it out to be, at least in the near-term.
Let’s start by comparing the security of Bitcoin to other networks. According to howmanyconfs.com, Bitcoin is still 3x more secure than Ethereum, it’s closest runner up.
After that, the security advantage over other networks is so substantial they aren’t even worth mentioning. Also, even though hashrate has fallen ~30% (current level compared to the 7 day trailing pre-halving), part of this reduction will probably just be temporary.