Bitcoin network, the world’s leading cryptocurrency, has faced a significant slowdown in daily transactions since January 28, 2024, leading to a drop in network activity and a decrease in on-chain fees. The decline is attributed to a reduction in the creation of Ordinal inscriptions, easing congestion and impacting miners’ earnings.
Currently, the Bitcoin network faces a downturn. The Bitcoin halving, occurring every four years, involves cutting the fixed rewards for Bitcoin mining in half. This mechanism controls the rate at which new Bitcoins enter the market, ensuring a steady, disinflationary trend and giving Bitcoin its store-of-value properties. The upcoming halving, expected in late April, will reduce block rewards from 6.25 to 3.125 BTC.
Miners, heavily reliant on Bitcoin’s price, face challenges in budgeting capital expenditures and navigating factors beyond their control. These include price fluctuations, hashrate, electricity costs, equipment expenses, and regulatory pressures. The upcoming halving intensifies these challenges, requiring miners to be well-prepared with flexible strategies to navigate potential disruptions.
The cost of mining Bitcoin is influenced by the network’s hashrate, representing the total computing power dedicated to maintaining the network. With Bitcoin’s hashrate currently at a record high, miners strive to secure rewards before the halving. However, the real challenge lies in sustaining revenue amidst rising competition, increasing hashrate, and energy costs constituting a significant portion of expenses.
Decline in Daily Transactions
Data from February 17, 2024, reveals a notable decrease in daily transaction activity, with miners processing 327,713 transactions in 24 hours. This represents a stark contrast to the peak of 636,523 transfers recorded on January 28. The trend continues with a monthly low of 278,098 transactions on February 6.
Ordinal Inscriptions Impact
The decrease in daily transactions aligns with a dip in the creation of Ordinal inscriptions, dropping from just over 300,000 on February 3 to a mere 35,814 three days later. This reduction in inscriptions directly contributes to the overall decline in transaction volume.
Miner Relief from Mempool Congestion
As Ordinal inscriptions decrease, miners experience relief from mempool congestion, witnessing a drop in unconfirmed transactions from over 200,000 before February 9 to the current figure of 139,625.
Fee Reduction
The diminished activity has led to a substantial decrease in average transaction fees, plummeting from the February 3 high of $14.81 to the current $4.56 per transaction or 27 satoshis per virtual byte. The median BTC transaction fee has also seen a decline, moving from $4.16 to today’s rate of $1.75 or 10.4 satoshis per virtual byte.
Miner Earnings and Hash Price
Despite the downturn, miners have collected over $816 million this month, with more than $47 million coming from on-chain transaction fees. The hash price, estimating the daily value of one petahash per second (PH/s) of hashing power, has decreased from a February 14 peak of $92 to the current $82 per PH/s.
Bitcoin’s Economic Recalibration
This shift in Bitcoin’s transaction landscape signals a potential recalibration within the network’s economy. Miners are adjusting to lower earnings, while users benefit from reduced fees, indicating a phase of stabilisation within the ecosystem.
Looking Ahead
With less than 9,000 blocks remaining until Bitcoin’s fourth halving event, the rise in Ordinal inscriptions, heightened demand for block space, and increased fees become crucial factors in sustaining Bitcoin miners.
The downturn faced by the Bitcoin network and fees underscores a noteworthy shift in the cryptocurrency’s economic dynamics. As the network adapts to this new norm, miners and users alike are navigating changes that may influence the future sustainability and stability of the Bitcoin ecosystem.
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