As the world gets excited about the upcoming Bitcoin halving and the resulting Bitcoin (BTC) price, it's important to take a moment to do a reality check.
This feature is part of CoinDesk's “Future of Bitcoin” package, published to coincide with Bitcoin's fourth “halving” in April 2024.
David Bailey is Azteco's Chief Marketing Officer.
For the majority of the world, half-life means nothing. Essentially, it's a simple evolution of the amount of money people who process Bitcoin transactions receive. All electronic payments require some kind of processing, whether made by credit card, Venmo, or a tap on your phone.
Bitcoin trading is no exception.
On-chain Bitcoin transactions are processed by a vast network of so-called “miners” who verify and record transactions on the blockchain. To date, these miners receive her two types of rewards. One is the block reward, which is paid by the Bitcoin he network, and the other is the network transaction fee, which is paid in Bitcoin by the person making the transaction.
Future “halvings” will reduce your initial reward by half. There's nothing surprising about this. Rather, the halving is a predetermined part of the system, designed to regulate the supply of new Bitcoin in a predictable manner until up to 21 million Bitcoins have been issued. Given current trends, at some point in the next century the block reward for processing Bitcoin payments will be halved to near zero.
However, the result of the block reward reduction has a significant impact on the second network transaction fee. The increase in transaction fees is a stark reminder that Bitcoin's supply is limited by design. Once 21 million Bitcoins are issued (as block rewards), there is no way for anyone to create more Bitcoins or change the supply, as governments often do with their own fiat currencies.
This is why some liken Bitcoin to “digital gold.” While it's not a bad comparison, there are two important differences to keep in mind. First, the supply of Bitcoin is fixed at 21 million Bitcoins. The supply of gold is finite, but it is not fixed or known. After all, no one knows what huge gold reserves will be discovered tomorrow.
Second, Bitcoin is infinitely divisible. As the value of Bitcoin increases, people will start trading in smaller pieces of value (for example, one Bitcoin contains 100 million satoshis). While gold is physical and cannot be infinitely subdivided as it increases in value, digital gold newcomers are trying to bring gold closer to Bitcoin.
The halving reminds people that the supply of Bitcoin is truly limited and demand is increasing, pushing up the price of Bitcoin in the long run. When something becomes more valuable, more people want to use it, and the cycle continues.
In the short term, the biggest day-to-day impact of the halving will be widespread consumer migration to processors with lower cost transaction fees. The Lightning Network is a second layer network that conducts Bitcoin transactions outside of the main blockchain. The Lightning Network, like the main blockchain, processes peer-to-peer Bitcoin transactions almost instantly.
difference? Lightning Network transaction fees are only a few cents. For the average person, someone who wants to send small amounts of money or use some Bitcoin to buy goods and services, this will be the preferred method of transaction. It's fast and cheap. The relative ease of doing business with the Lightning Network may also accelerate consumer adoption.
Of course, on-chain transactions will never go away. Just as people use wire transfers instead of debit cards to buy cars or homes, people will continue to use blockchain to record large transactions.
As transaction fees in on-chain networks continue to increase, network congestion will be offset by migration to second-tier networks, resulting in an increase in the volume of transactions, some of which will occur on the main blockchain, and The volume of transactions will increase. Processing fees. Ultimately, even with the rise of second-tier networks like Lightning, network fees will most likely end up steadily increasing as Bitcoin becomes more popular.
That's good.
The more Bitcoin functions like other currencies, the more comfortable people will feel using it. Most of us are not miners, but many of us are currently economically disenfranchised. Today, there are more than 1 billion adults in the world who have a smartphone but do not have a bank account. These people are digitally connected to the world, but lack the benefits of participating in the global financial system.
For them, Bitcoin is a powerful solution for daily spending and personal savings, but only if it is fast, reliable, cheap, and reliable. accessible. The adoption of second layer networks like Lightning will be accelerated and the halving will make Bitcoin exactly what it is.
