The Final StrawFor the most part, the Bitcoin block reward halving is generally considered to be a bullish event. After all, by reducing the rate of inflation, it is expected that scarcity will increase alongside adoption. As a result, since the supply of newly minted Bitcoin should be outweighed by growing demand, this is likely to cause upward pressure on price. After all, if the value of Bitcoin failed to increase, then the absolute value of block rewards would gradually decrease with every halving event. Fortunately, thus far, there has been a considerable price rally in the months before a halving, which has multiplied the price of Bitcoin to such a degree that the block reward halving was nearly inconsequential. It is thought that by the time the block rewards reach an almost vanishingly small number, that the Bitcoin network will be sufficiently large and healthy that miners will continue to support it in return for just transaction fees. Right now, transaction fees represent only a small fraction of a miner’s expected rewards. This is likely to change gradually over the coming decades. However, if the price of Bitcoin fails to compensate for the reduction in block rewards, then this would be an unprecedented event that could change the way the Bitcoin network develops in the future. With a block reward of 1 satoshi, a single Bitcoin would need to be worth almost $10 trillion to maintain the US dollar value of block rewards—this would place the total market cap of Bitcoin at $2.1e+20—which seems highly unlikely.
What if Bitcoin Loses its MinersAlthough more efficient equipment could still ensure Bitcoin mining is profitable for some time, it is widely acknowledged that the technologies used to build more capable processors are not advancing as quickly as they once did. Because of this, it is likely that transistor-based Bitcoin miners will eventually become less frequent as the successors to silicon-based transistors rise to prominence. However, if improvements in Bitcoin miner efficiency fail to equal or exceed the rate at which Bitcoin block rewards reduce in absolute value, then the Bitcoin network could gradually see a miner exodus, with only the very largest and most well-equipped miners able to maintain profitability. As a result, two significant issues could occur in this situation. The first issue is centralization. If mining profitability can only be achieved by the most well-oiled mining operations, then it stands to reason that the total number of unique miners will gradually reduce over time. If this occurs, then Bitcoin’s resistance to censorship will also diminish, potentially increasing the risk of a chain reorganization and selective censorship. Alternatively, if the Bitcoin miners maintain decentralization, but the network sees a hash rate reduction to make block discovery easier, then the system again loses protection against attacks. This could eventually lead to a point where launching a successful 51% attack the Bitcoin network becomes possible. Because of this, Bitcoin may be forced to switch to a new consensus model should either of these two possibilities occur.
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