Bitcoin-based codebases often inherit the halving, or “Halvening,” a programmed monetary supply control event in which the block rewards paid out to network-running miners gets slashed in half.
Notably then, Bitcoin Cash (BCH), the most prominent Bitcoin (BTC) fork to date, just underwent its first halving. But because of the current state of the BCH market, namely the BCH price, that inaugural halving has unleashed a new pall of uncertainty over the project’s stakeholders for the near future.
Why? Because unless the BCH price increases significantly in short order, the halving will may effectively amount to a 50 percent pay cut to the blockchain’s miners. This would lead to more than a few outfits heading to the exits, which in turn would lead to acute downward pressure on the blockchain’s hash rate and the BCH price.
Profits Cut in Two?
On Wednesday, April 8th, the first Bitcoin Cash halving occurred at block number 630,000. The planned phenomenon axed the network’s block rewards from 12.5 to 6.25 BCH — or roughly $3,325 USD to $1,662.50 with the BCH price being ~$266 at the time of writing.
Bitcoin Cash’s halving is a holdover from the blockchain’s controversial fork from Bitcoin back in August 2017. At the time, the project’s backers split off from Bitcoin to maintain their own version of Bitcoin, albeit with on-chain scaling via “big blocks” larger than 1-2 MB.
With that said, Satoshi Nakamoto originally put the halving in place as a mechanism to facilitate the bitcoin inflation rate eventually trending to zero, at which point bitcoin would become fully deflationary and be powered only by transaction fees, i.e. its own internal activities, rather than by block rewards and fees.
This process only works gracefully, though, if it coincides with growth. For instance, the Bitcoin blockchain has undergone two halvings so far, and the bitcoin price grew enough across that eight year span to keep bitcoin mining readily profitable.
On the flip side are projects like Litecoin, which underwent its own halving in August 2019. In the aftermath of that supply event, the LTC price dropped from $100 to $50 over the following quarter as the decrease in LTC block rewards without an offsetting LTC price surge saw miners close up shop and sell-off LTC.
Zooming out, it seems Bitcoin Cash’s first halving is poised to play out more like Litecoin’s last halving, at least as things stand. Last month, BCH miners earned nearly $13.5 million in block rewards, so post-halving if the BCH price stays near its current position or drops further for the forseeable future, these miners stand to make half the revenue or even less — all for the same amount of work and the same operational costs.
“The Halvening is unquestionably bearish for BCH,” DTC Capital head Spencer Noon said on April 8th, later adding that “Miners don’t work for free.”
What Comes Next?
If the BCH price does rally considerably in the coming days, then things may go smoothly and post-halving chop can be avoided for Bitcoin Cash through the short- and mid-term future.
Such a rally seems improbably considering how gloomy the world’s economic situation looks right now as the globe contends with the ongoing COVID-19 pandemic and its societal fallout. And even if an acute rally does occur here or there, they may be dead cat bounces amid a wider economic downturn.
As such, on the price-front only a sustained price rally would help. Alternatively, the BCH fee market could make up for the lower block rewards, but BCH fees currently don’t generate anything even remotely close to what it would take to make up for the post-halving rewards shortfall. That probably won’t change any time soon, either, so things may get uglier before they get better for Bitcoin Cash.