What the Bitcoin halving means for the network’s energy consumption concerns

Shiraz Jagati9 hours agoWhat the Bitcoin halving means for the network’s energy consumption concernsA closer look at the upcoming halving’s potential to usher in more sustainable mining practices.1982 Total views16 Total sharesListen to article 0:00AnalysisOwn this piece of crypto historyCollect this article as NFTJoin us on social networksOccurring approximately every four years, Bitcoin’s upcoming halving event seems to have once again piqued the interest of investors all over the globe. 

This is because the block reward for mining the cryptocurrency is set to be slashed by half, effectively diminishing the rate at which new BTC is generated and introduced into circulation. This mechanism is central to Bitcoin’s deflationary economic model, designed to cap the total supply of Bitcoin at 21 million.

Historically, halvings have had significant implications for Bitcoin’s price and the broader cryptocurrency market. The first Bitcoin halving in 2012 slashed the block reward from 50 to 25 Bitcoin, followed by subsequent halvings in 2016 and 2020, further reducing the rewards to 12.5 and 6.25 Bitcoin, respectively. 

While these events have traditionally led to increased market interest and significant price rallies, there’s a growing dialogue around their environmental impact.

Reducing mining rewards raises questions about sustainability in the mining sector, specifically how it might prompt a shift toward greener, more energy-efficient technologies in the face of diminishing returns. Such changes are pivotal for the long-term viability of Bitcoin, particularly as environmental concerns become as central to the discussion as economic factors.Bitcoin energy consumption concerns 

The halving of Bitcoin’s mining rewards has amplified the discourse surrounding the cryptocurrency’s already high energy consumption, especially since its associated computational processes consume vast amounts of electricity predominantly sourced from fossil fuels.

Critics further point out that if the reduced mining rewards lead to more energy-intensive practices to sustain miner profitability, this could exacerbate Bitcoin’s carbon footprint, thereby conflicting with many of the United Nation’s global sustainability goals.

Not everyone is convinced that the halving will result in increased energy consumption.

Aarvind Sathyanandam, co-founder and chief strategy officer for Bitcoin-based decentralized finance (DeFi) platform Velar, told Cointelegraph that the event will primarily affect the block reward issued to miners on the Bitcoin network and not its energy consumption.

Moreover, he said that the reduction in mining income could incentivize less efficient miners using older equipment to upgrade to newer, more energy-efficient models to maintain profitability:“The halving will increase operating costs for miners if the BTC’s value or transaction fee revenue does not rise to compensate them. This could force some miners with slim margins to suspend operations. However, efficient miners will upgrade to advanced ASIC rigs that maximize productivity and minimize energy overhead. The latest mining gear tends to be far more energy efficient in terms of hashes per watt.”

Sathyanandam said that while the halving may contribute to a short-term drop in energy use if unprofitable miners go offline, broader industry incentives around efficiency and innovation could drive continued improvements around energy.

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“Bitcoin’s self-balancing ecosystem has always rewarded miners who evolve with the best hardware and newest efficiencies. So in the longer term, the halving is likely to accelerate advancement and the shift toward cleaner solutions for securing the network,” he said.

Andrey Stoychev, head of prime brokerage for crypto lending platform Nexo, sees one of two scenarios playing out after the halving.

In the first scenario, the recent strong demand for Bitcoin could continue on the back of decreasing supply, leaving little to no way for mining operators to stay in business unless there is an even stronger price appreciation.

The second course of action is for the Bitcoin miners to invest in more advanced and productive equipment that counters the decreased payout from maintaining the Bitcoin network.

Stoychev told Cointelegraph, “Judging by the number of new addresses and transaction count, energy consumption is unlikely to go down post-halving with all that activity.”

A spokesperson for cryptocurrency exchange Bittrue told Cointelegraph that, on the one hand, a reduction in mining rewards might lead to a decrease in energy consumption, but on the flip side, it might also spur energy use as miners may seek to maintain profitability by upgrading to more powerful, potentially more energy-intensive equipment: “The upgrade could increase energy consumption, especially if miners prioritize computational power over energy efficiency.”Can the halving lead to more sustainable mining practices?

The Bitcoin mining community has continually made claims about the industry’s ability to enhance renewable energy development. Similarly, could the Bitcoin halving help miners become more energy efficient?

According to James Wo, CEO and founder of DFG — a Web3-focused investment firm — energy expenses make up a large part of mining costs, creating a strong motivation to enhance energy efficiency or switch to more affordable and sustainable sources like solar, hydro and geothermal power. He added:“This transition could promote more sustainable mining methods, but the speed and scope of this shift will hinge on factors such as the availability of renewable energy sources, technological advancements in mining equipment and changes in energy prices.”

On a similar note, Sathyanandan stated that the halving could catalyze a shift toward more sustainable mining practices over time, saying that many miners are already looking in this direction, highlighting recent data that shows over 50% of Bitcoin’s energy mix is already coming from renewables.

“The post-halving pressure could push this figure far higher. Transitioning just another 10-30% more of global mining to renewables could completely decarbonize the Bitcoin network. And while miners will migrate to the lowest cost power due to the halving regardless of source, renewables appear primed to begin drastically undercutting fossil fuel energy economically,” he said

Stoychev firmly believes that the only way for miners to remain operational is to adapt to the new economic realities that the halving will bring. Speculating on how things might pan out in the near term, he believes a major consolidation may take place, where smaller mining operations may be acquired by established industry giants — a sign of maturation, he believes.

“In this day and age, where technological advances are taken for granted, there is no doubt that more efficient mining equipment will make its way into the industry. As far as renewable energy sources are concerned, albeit challenging, they may be the most logical future for Bitcoin,” he said.Green mining might be the only way forward

As large-scale corporate entities continue to showcase their interest in Bitcoin in different ways, it stands to reason that in the future, firms may want exposure to this burgeoning asset class while also requiring clearer sustainability roadmaps to satisfy their stakeholders.

This, in Sathyanandan’s view, will motivate more miners to participate in carbon offset programs and invest directly into technologies or sites running fully on renewables. “Prioritizing eco-friendly practices allows publicly listed miners and enterprise farms to tap into this class of institutional investment dollars,” he added.

Furthermore, he believes that while miners will still continue to chase profits, the halving will refocus incentives around cheap electricity at scale. The transition toward post-halving green mining is imminent when coupled with surging corporate and institutional climate priorities. “Renewables appear destined to become Bitcoin’s energy backbone long-term, with 2024 halving potentially the tipping point toward mass sustainability initiatives,” he said.

Robby Greenfield IV, co-founder and CEO at Umoja Labs — a Web3 development studio — told Cointelegraph that while some other analysts may be divided as to how the Bitcoin halving will impact global energy consumption levels, in his view, the event will only increase power consumption, leading to increased miner centralization.

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That said, he believes larger firms will continue to seek out sustainable energy sources (such as solar) to minimize increased costs in the long term. However, all of this, in Greenfield’s view, hinges on whether these mining entities are even capable of doing so.Other factors to consider

As the halving inches closer, Bittrue’s research team believes that another effect we might witness is the growing geographical distribution of miners globally. In their view, the distribution of these individuals and entities may shift significantly since there are many regions across the world — especially across Eastern Europe and Africa — offering abundant and cheap renewable energy sources. “This could have implications for energy markets and regulatory frameworks in those regions,” the team added.

Lastly, advancements in Bitcoin-related technologies, such as the integration of Lightning Network payments, could further positively influence the dynamics of energy consumption and sustainability, as layer-2 solutions allow transactions to be conducted off-chain, thereby reducing the need for high computational power.# Bitcoin# Mining# Bitcoin Price# Adoption# Bitcoin Mining# Bitcoin Halving