What will the Bitcoin halving event do for blockchain and digital commerce?
Bitcoin (BTC) traders potentially experienced a drop in revenue last week. On May 11, the number of new BTC bitcoins entering circulation dropped by half — from 12.5 to 6.25. And the expected revenue from each block reward operation was also cut in half, impacting profitability.
Other Bitcoin protocols had their halving in early April 2020. This recent halving could now impact the way that different Bitcoin protocols are used, as the total number of Bitcoins that successful miners can win (when they negotiate to process a block of transactions) has halved.
Why is this different?
Halving events have happened twice before — four and eight years ago — yet the mining rewards have steadily risen. What is so different this time?
Blockchain transactions are processed for a fee by computer nodes — also known as miners. New transactions are grouped into a block and broadcast to the network. Each block contains information about the previous block — in a SHA-256 hash — which links it to the previous block, forming the term blockchain.
The Proof of Work algorithm is a process where miners compete against each other in order to ‘win’ the chance to process a block, and earn a Bitcoin fee for processing the block.
Miners generate revenue through newly created bitcoin and transaction fees for processing each block.
Halving means that it is more difficult for miners to make money — as there are fewer blocks around for miners to process, for the same processing cost. In previous halving events, the price of BTC Bitcoin has increased after each event, and it is predicted to rise further.
Bitcoin has a hard limit of 21 million coins, which enter the market in a controlled way over time. This halving event has impacted some types of Bitcoin, as miners are selling existing Bitcoin to purchase newer mining hardware, and some hobbyist miners may have to shut their unprofitable operations.
High-margin miners could however temporarily operate at a loss for a short period of time, removing small hobbyist, and DIY miners from the network as their hardware might not be powerful enough to win resource-intensive, Proof of Work challenges.
Since the Genesis update lifted the protocol limit up to 1GB in size, blocks can scale, if required, and process more transactions at a lower cost per transaction. One block recently mined contained over 1.3 million transactions in the block and had a size of 369mb.
So, what does this mean for digital commerce? Bitcoin can encode, store, and compute any thing in the world. Larger and larger transactions can move data around the blockchain — bringing enterprise scalability and speed –which is what enterprises need.
In its top 10 strategic technology trends for 2020 report, Gartner has suggested that enterprises should start to evaluate distributed ledger technologies in 2020 to provide transparency and reduce transaction costs across the blockchain.
Services such as asset tracking and record-keeping are both potential scenarios for blockchain technology.
Resistance to failure
Due to their decentralized nature, enterprise blockchains can cope with failures in some of their nodes and keep the whole system up during these issues.
IBM already provides a blockchain-based enterprise platform, and the Oracle blockchain platform enables its customers to provision blockchain networks.
Whilst private blockchains may be a stepping stone for enterprises to adopt public blockchains for transactions, there is scope for a hybrid mixture of private and public blockchains as enterprises work out how best to use the technology.
As the business value-add of blockchain technologies is predicted to reach $176 billion by 2025 and $3.1 trillion by 2030, more and more businesses are starting to take note.
Now that blockchain technology has the potential for unlimited scaling — the possibilities for enterprise adoption is no longer a matter of if, but a plan for when blockchain will become ubiquitous.
Disclaimer: I have never bought or sold any types of Bitcoin, nor processed any blockchain transactions.
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