Bitcoin’s upcoming halving event, which occurs approximately every four years, seems to have once again piqued the interest of investors around the world.
This is because the block reward for mining the cryptocurrency is cut in half, effectively reducing the rate at which new BTC is generated and put into circulation. This mechanism is central to Bitcoin’s deflationary economic model, which is designed to cap the total supply of Bitcoin at 21 million.
Historically, halvings have had significant implications for Bitcoin’s price and the broader cryptocurrency market. The first Bitcoin halving in 2012 reduced the block reward from 50 to 25 Bitcoin, followed by subsequent halvings in 2016 and 2020, which further reduced the rewards to 12.5 and 6.25 Bitcoin, respectively.
Although these events have traditionally led to increased interest in the market and significant price increases, there is a growing dialogue about their environmental impact.
The reduction in mining rewards raises questions about sustainability in the mining sector, specifically how it might cause a shift to greener, more energy-efficient technologies in the face of declining returns. Such changes are crucial to the long-term viability of Bitcoin, especially as environmental issues become as central to the discussion as economic factors.
Concerns about Bitcoin energy consumption
The halving of Bitcoin’s mining rewards has intensified the discourse surrounding the cryptocurrency’s already high energy consumption, especially as its associated computational processes consume large amounts of electricity, which is mainly derived from fossil fuels.
Critics further point out that if the reduced mining rewards lead to more energy-intensive practices to maintain mining profitability, this could worsen Bitcoin’s carbon footprint and thereby conflict with many of the United Nations’ global sustainability goals.
Not everyone is convinced that the halving will result in increased energy consumption.
Aarvind Sathyanandam, co-founder and chief strategy officer for Bitcoin-based decentralized finance (DeFi) platform Velar, told Cointelegraph that the event will primarily affect the block reward issued to miners on the Bitcoin network and not its energy consumption.
Furthermore, he said that the reduction in mining revenue could prompt less efficient miners using older equipment to upgrade to newer, more energy-efficient models to maintain profitability:
“The halving will increase operating costs for miners if the BTC’s value or transaction fee revenue does not increase to compensate them. This could force some miners with slim margins to suspend operations. However, efficient miners will upgrade to advanced ASIC installations that maximize productivity and minimize energy overhead. The latest mining equipment tends to be much more energy efficient in terms of hashes per watt.”
Sathyanandam said that while the halving could contribute to a short-term drop in energy consumption as unprofitable miners go offline, broader industry incentives around efficiency and innovation could drive continued improvements around energy.
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“Bitcoin’s self-balancing ecosystem has always rewarded miners who develop with the best hardware and latest efficiencies. So in the longer term, the halving will likely accelerate progress and the shift to cleaner solutions for securing the network,” he said.
Andrey Stoychev, head of prime brokerage for crypto lending platform Nexo, sees one of two scenarios playing out after the halving.
In the first scenario, the recent strong demand for Bitcoin could continue due to declining supply, leaving little to no way for mining operators to stay in business unless there is an even stronger price appreciation.
The second course of action is for the Bitcoin miners to invest in more advanced and productive equipment that offsets the reduced payout of maintaining the Bitcoin network.
Stoychev told Cointelegraph, “Judging by the number of new addresses and transaction count, energy consumption is unlikely to drop after halving with all that activity.”
A spokesperson for cryptocurrency exchange Bittrue told Cointelegraph that on the one hand, a reduction in mining rewards could lead to a decrease in energy consumption, but on the other hand, it could also spur energy use, as miners could seek to maintain profitability by upgrade to more powerful, potentially more energy-intensive equipment: “The upgrade may increase energy consumption, especially if miners prioritize computing power over energy efficiency.”
Could the halving lead to more sustainable mining practices?
The Bitcoin mining community has continually made claims about the industry’s ability to improve renewable energy development. Likewise, could the Bitcoin halving help miners become more energy efficient?
According to James Wo, CEO and founder of DFG – a Web3-focused investment firm – energy expenses make up a large part of mining costs, creating a strong motivation to improve energy efficiency or switch to more affordable and sustainable sources such as solar, hydro and geothermal power. He added:
“This transition could promote more sustainable mining methods, but the speed and extent of this shift will depend on factors such as the availability of renewable energy sources, technological advances in mining equipment and changes in energy prices.”
On a similar note, Sathyanandan said that the halving could catalyze a shift towards more sustainable mining practices over time, saying that many miners are already looking in this direction, highlighting recent data showing that more than 50% of Bitcoin’s energy mix already comes from renewable energy. .
“The pressure after halving can make this figure rise much higher. Switching just another 10-30% more from global mining to renewable energy could completely decarbonize the Bitcoin network. And while miners will migrate to the lowest cost power as a result of the halving, regardless of the source, renewable energy appears poised to drastically undercut fossil fuel energy economically,” he said.
Stoychev firmly believes that the only way for miners to remain operational is to adapt to the new economic realities that the halving will bring. He believes that a major consolidation could occur where smaller mining operations can be acquired by established industry giants – a sign of maturation, he believes.
“In this day and age, where technological advancements are taken for granted, there is no doubt that more efficient mining equipment will make its way into the industry. As for renewable energy sources, even though it is challenging, it could be the most logical future for Bitcoin,” he said.
Green mining may be the only way forward
As large-scale corporate entities continue to demonstrate their interest in Bitcoin in various ways, it stands to reason that companies may want exposure to this burgeoning asset class in the future, while also needing clearer sustainability roadmaps to satisfy their stakeholders.
This, according to Sathyanandan, will motivate more miners to participate in carbon offset programs and invest directly in technologies or sites that fully run on renewable energy. “By prioritizing eco-friendly practices, publicly listed miners and enterprise farms are poised to take advantage of this class of institutional investment dollars,” he added.
Furthermore, he believes that while miners will continue to chase profits, the halving will refocus incentives around cheap electricity at scale. The transition to post-halving green mining is imminent when coupled with rising corporate and institutional climate priorities. “Renewables appear destined to become Bitcoin’s long-term energy backbone, with 2024 potentially halving the tipping point to mass sustainability initiatives,” he said.
Robby Greenfield IV, co-founder and CEO at Umoja Labs – a Web3 development studio – told Cointelegraph that while some other analysts may be divided on how the Bitcoin halving will affect global energy consumption levels, in his opinion the event will only increase power consumption, leading to increased miner centralization.
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That said, he believes larger companies will continue to look to sustainable energy sources (such as solar power) to reduce increased costs in the long term. However, according to Greenfield, all of this depends on whether these mining entities are even capable of doing so.
Other factors to consider
As the halving centimeter approaches, Bittrue’s research team believes that another effect we may see is the growing geographic spread of miners worldwide. According to them, the distribution of these individuals and entities can shift significantly as there are many regions around the world – especially across Eastern Europe and Africa – that offer abundant and cheap renewable energy sources. “This could have implications for energy markets and regulatory frameworks in those regions,” the team added.
Finally, advances in Bitcoin-related technologies, such as the integration of Lightning Network payments, can further positively impact the dynamics of energy consumption and sustainability, as layer-2 solutions enable off-chain transactions, thus eliminating the need for high computing power.
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