The “halving” of bitcoin last week has produced a relatively modest rise in its price. It has also led to a huge spike in the cost of bitcoin transactions that points to a growing existential threat to the functioning of the cryptocurrency.
Last Friday, the rewards bitcoin “miners” get for verifying transactions on the blockchain that underpins bitcoins halved, from 6.25 bitcoins to 3.125. The daily total of bitcoins available to the miners fell from 900 to 450.
Last week’s halving of the supply of new bitcoins and the consequential halving of revenue to the cryptocurrency’s miners raises big questions for its future. Credit: Bloomberg
The halving is a quadrennial event, with the last one occurring in May 2020 and the next one scheduled for around this time in 2028. It is a design feature of the cryptocurrency, embedded in its code by its creator Satoshi Nakamoto to gradually squeeze the supply of new bitcoins and, in the process, provide an increasing incentive to the miners, who are paid in bitcoins, to participate in the network.
There is an eventual cap of 21 million bitcoins in circulation, which will be reached in 2140. To date, about 19.6 million bitcoins have been mined.
It is the throttling of supply relative to a demand that has been greatly expanded by the US Securities and Exchange’s reluctant decision in January this year (forced on by a court judgement) to allow exchange-traded funds to create bitcoin ETFs. The best part of $US10 billion ($15.5 billion) of new money has flowed into the bitcoin market via those funds.
The reason the bitcoin price movement has, by its volatile standards, been relatively small – it has risen from just under $US64,000 ($99,000) on Friday to just under $US67,000 (it has been trading locally around $103,000) – is that the halving was factored into the price ahead of the event. It hit a record price of just over $US73,000 last month, having traded below $US40,000 earlier this year.
It is logical that if an asset becomes relatively more scarce, particularly in a market for bitcoins which has limited liquidity because, for various reasons, there are large passive holdings that have never traded, its price should reflect that scarcity.
Bitcoins have no inherent value. They are not a payment system or a medium of exchange within the existing payment system. They are a mechanism for speculation and their limited supply has made them one of the purest of risk assets. Indeed, as their volatility suggests, they provided leveraged exposures to risk.
The existential threat to bitcoin
18
1
23.04.2024
The “halving” of bitcoin last week has produced a relatively modest rise in its price. It has also led to a huge spike in the cost of bitcoin transactions that points to a growing existential threat to the functioning of the cryptocurrency.
Last Friday, the rewards bitcoin “miners” get for verifying transactions on the blockchain that underpins bitcoins halved, from 6.25 bitcoins to 3.125. The daily total of bitcoins available to the miners fell from 900 to 450.
Last week’s halving of the supply of new bitcoins and the consequential halving of revenue to the cryptocurrency’s miners raises big questions for........
© The Sydney Morning Herald
visit website
login
who are we?
contact us
qosheapp
Toi Staff
Gideon Levy
Belen Fernandez
Rami G Khouri
Mort Laitner
Donald Low
Ali Fathollah-Nejad
Nikkei Editorial
