There are only 7 months left until the next Bitcoin (BTC) halving in April 2024. Halving occurs approximately every four years and is a deflationary process in which the production of new coins will be reduced by 50%.
The Bitcoin halving is one of the most high-profile events for cryptocurrency investors and has historically caused Bitcoin price increases. However, its impact on the mining industry is a more complex issue. It reduces block rewards, which are one of the main sources of income for miners. The 2024 halving will reduce the price from 6.25 BTC to 3.125 BTC. This is why miners must adjust their strategies to make up for the reduced rewards brought about by the halving.
Let’s explore strategies and alternative revenue streams that may help Bitcoin miners during adverse market conditions.
change mentality
Bitcoin mining involves a competitive process where miners compete for block rewards. This competition is driven by Bitcoin’s block times, which at the protocol level average about 10 minutes per block. Whether the network’s computing power is a relatively low 1 kH/s, or it surges to 200 million TH/s, the same block rewards must be distributed among miners.
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This competitive environment encourages miners to prioritize energy efficiency and use cost-effective hardware. In each halving event, the block reward is reduced by 50%, and this efficiency trend will be enhanced. As the cost of producing a single Bitcoin is set to roughly double shortly after the next halving, miners will need to explore ways to optimize profitability and focus on these three key factors.
Bitcoin miners’ survival depends on these three whales
The first and most important “whale” is the cost of electricity.Even small fluctuations of 1 cent per kilowatt hour (kWh) can cause lead JPMorgan Chase said there is a huge $3,800 difference in the production cost of Bitcoin. To improve post-halving profitability, miners are exploring complex contracts and considering relocating to countries or regions with lower electricity prices. They are even considering using stranded natural gas to generate electricity. I believe it is critical for miners to ensure that electricity prices remain at or below 5 cents/kWh to maintain profitability beyond April 2024.
The second major factor that miners need to focus on is the efficiency of the equipment.For example, the daily BTC mining cost can be cut off When upgrading from a drill with an efficiency class of 60 J/TH to a drill with an efficiency class of 22 J/TH, efficiency increases by more than 63%. Miners with efficient hardware and benefiting from lower electricity costs will be the most profitable. They are the ones most likely to withstand major market events like the upcoming halving.
Additionally, I recommend a third strategy for miners, which is to accumulate excess capital in mined BTC during profitable periods. This reserve acts as a buffer against the impact of reduced block rewards following the halving. When a post-halving rally occurs, miners can tap into their reserves by selling mined assets at higher profit margins, helping offset losses.
Although strategies such as lowering electricity prices, adopting more energy-efficient mining equipment, and utilizing reserve funds can mitigate the adverse effects, the 2024 halving will put tremendous pressure on miners. It could shut down many mining operations. Therefore, miners also need to explore other sources of revenue. A promising opportunity for miners lies in projects like Bitcoin Serial Numbers.
Other methods
Bitcoin serial numbers have attracted widespread attention recently by driving transaction fees within the Bitcoin network to new highs. The ordinal “inscription” is the metadata attached to each satoshi and is a unique asset created directly on the Bitcoin blockchain, similar to a non-fungible token (NFT). To obtain one, users typically interact with the platform or protocol responsible for the ordinal number.
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As the number of inscriptions has increased, to date exceeding 25.5 million, so has the revenue generated from the transactions, to be exact, with fees totaling more than $53 million. This trend suggests that alternative revenue streams for miners may be valued in the long term.
We see ordinal numbers changing the profitability equation for miners, increasing the need for users to create inscriptions, initiate processing of transactions on the Bitcoin network, and incentivize miners to include their transactions in the next block.
We can certainly expect more developments on the Bitcoin network, which will allow miners to adapt to post-halving conditions more efficiently. As the halving event approaches, miners must prioritize the above strategies to optimize their profitability and remain open to new alternatives on the horizon.
Didal Bekbov is the CEO of Bitcoin mining company Xive, which he co-founded in 2019. He previously served as managing partner of Hive Mining. He holds an undergraduate degree from Kezak University of Technology in the UK and a master’s degree in financial management from Robert Gordon University in the UK. He also serves as a mentor for the Texas Founders Institute’s startup accelerator program in Houston.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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