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.with the last one occurring in May 2020 and the next one scheduled for around this time in 2028.
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. Bitcoin’s “miners” use massive amounts of processing power – and massive amounts of high-cost energy – in verifying the blocks of deals. The bitcoin system depends on those miners for its security and the trust that the blockchain is recording only legitimate transactions.
The halving will have a big impact on the revenue of smaller or more leveraged miners because their revenue per transaction has been halved. On Friday, as the 210,000th block that triggered the halving was processed, they shot up to $US128. . Over the weekend, the average transaction cost fell back below $US35.
If it is increasingly uneconomic to continue to mine, there will be a growing question mark over the capacity of the network to verify transactions.