The Bitcoin halving is a programmed process in the Bitcoin (BTC) protocol that reduces the amount of BTC that can be mined per block by 50% every 210,000 blocks, which occurs roughly every four years. In a matter of days, the reward for mining a block will reduce from 6.25 BTC to 3.125 BTC. 

The halving shock makes Bitcoin even scarcer and acts as a deflationary measure, bolstering the asset as a store of value.

Bitcoin investors will be happy with the expected price rise post-halving, but miners will need to adapt or die as they compete for fewer BTC rewards. Ultimately, miners are the most affected by the halving.

BTC miners have to constantly optimize their operations as they play a long-term game that depends on the market price of the Bitcoin they receive for mining blocks, depending on their mining efficiency. With block rewards not getting any bigger, miners must prepare to survive in a volatile market.

The 2024 halving has the potential to transform the mining landscape.

Bitcoin miners will be forced to seek out more affordable energy sources and carefully optimize their mining equipment. This may involve meaningful changes in how the Bitcoin mining industry functions, which are relevant to any Bitcoin holder.

Bitcoin miners will need to upgrade their rigs

Bitcoin miners know the rules of the game. One great advantage of the Bitcoin protocol is that its future behavior is written in code.

Just as investors know the liquidity shock the halving delivers, miners know their business model will be tested every four years.

Speaking to Cointelegraph, the founder and CEO of mining pool Demand, Alejandro De La Torre, seemed excited about the halving:

“The halving always shakes things up. It is a great opportunity for new players to come into the industry.”

However, a market shake-up will eventually mean that some miners will disappear.

The price of Bitcoin is highly correlated to the profitability of miners. If it doesn’t increase enough to offset the block reward reduction, “older miner models as of three to five years old” will no longer be cost-effective, Ben Gagnon, chief mining officer at Bitcoin mining company Bitfarms, told Cointelegraph.

When asked if he thinks the Bitcoin mining industry is prepared for the upcoming halving, De La Torre — who is also former vice president of mining pool Poolin — highlighted how the continuous growth of the global Bitcoin hash rate “might signal that miners are already upgrading equipment for the upcoming halving.”

The Bitcoin hash rate refers to the computational power that validates and secures the transactions of the Bitcoin network. The metric indicates how much mining activity is present in Bitcoin’s blockchain. The hash rate of Bitcoin has been reaching consecutive new records, where 700 exahashes per second (EH/s) could be the next milestone.

Optimization is a core tenet of Bitcoin mining. Whoever mines Bitcoin and remains static won’t survive in the long term. Bitcoin mining expert and crypto assets adviser Anibal Garrido told Cointelegraph, “Most of the successful miners are already using new and efficient machinery. Those who are not prepared are doomed to go broke.”

Bitcoin miners may migrate to other countries

When considering the global distribution of Bitcoin miners, the United States still controls the lion’s share of mining power at nearly 38%, according to Chain Bulletin.

Global hashing power distribution. Source: Chain Bulletin

De La Torre believes that the United States will be the most affected by the halving, as it has the highest hash rate. The effects could force inefficient miners to shut down their mining rigs “completely or momentarily” if they can update their infrastructure.

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The distribution of mining worldwide depends mainly upon the energy costs to run mining rigs. The cost of mining 1 BTC may differ significantly depending on which country a miner is in.

For example, Italy is not an attractive country for mining Bitcoin. The cost of mining 1 BTC is roughly equivalent to the price of a new Lamborghini Huracan.

Household electricity cost to mine 1 BTC for solo miners as of September 2023. Source: CoinGecko

The halving could represent an excellent opportunity for countries or regions with low purchasing power, with old-generation mining rigs hitting the market en masse. De La Torre said:

“The halving is an opportunity for new regions to emerge as profitable places; keep an eye out for the Middle East, Africa and Latin America.”

Venezuelan miner Garrido believes Latin Americans could benefit significantly from the migration of miners. “Countries like Paraguay and Venezuela are places where attention will sooner or later be focused because of its low electricity prices.” On Nov. 16, 2023, Tether invested $500 million into Bitcoin mining operations in Paraguay, demonstrating its potential.

Garrido clarified that energy costs are one of the most crucial metrics for miners, though the legal and secure regulatory environment are also important factors. Thanks to its favorable regulatory environment, the U.S. is one of the most popular locations to mine despite its high energy cost compared to other countries.

BTC miners won’t move to other blockchains

Miners have another option, and instead of selling or moving their operations, they could decide to mine a different cryptocurrency altogether.

All the interviewed miners agreed that this option is highly unlikely.

Gagnon said that Bitcoin mining equipment can only be used to mine cryptocurrencies that use the SHA-256 hashing algorithm. Therefore, the only “SHA256 coins to mine are Bitcoin Cash (BCH) and Bitcoin SV (BSV), both of which have insignificant market caps compared to Bitcoin and lack liquidity.“

For Garrido, this option is out of the question for any miner with common sense:

“Digital gold will always be digital gold. No one with common sense will migrate from gold to garbage.”

Will centralization threaten Bitcoin as miners leave?

One of the core values of cryptocurrencies — and specifically of Bitcoin — is decentralization.

In the first years of Bitcoin, anybody with a personal computer could mine the cryptocurrency. As Bitcoin became more popular, so did the appetite for cryptocurrency miners.

As the industry evolved, several mining groups formed that allegedly threatened to centralize the Bitcoin mining industry, an aspect that would horrify its creator, Satoshi Nakamoto.

With each halving, mining Bitcoin becomes harder as bigger mining rigs are required, and the difficulty of mining Bitcoin rises. 

As a result, small miners exit the market while large, more financially able firms — some of which are even publicly traded — account for a larger share of Bitcoin hash rate.

Ultimately, this process could risk centralizing the Bitcoin mining industry.

De la Torre believes that “large players with money will be able to expand their mining fleet even further” as the secondary market will be flooded by cheap rigs from troubled companies. Could the migration within the mining industry make Bitcoin mining more centralized?

Gagnon disagreed, stating there are “strong natural economic forces that prevent centralization,” explaining how if the two largest miners by active hash rate — Marathon and Core Scientific — were to merge, they wouldn’t gain even 10% of the network hash rate. For Gagner, “centralization seems to be an increasingly smaller and smaller concern with each halving.”

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De La Torre pointed out how the price of Bitcoin is relevant to decentralization. If the price of Bitcoin surges, new actors will want to enter the mining industry, pushing for more decentralization.

Garrido said that the Bitcoin mining sector centralizing is highly improbable:

“The open-source structure and the game theory on which Bitcoin is based do not allow it to centralize, no matter what epoch or halving we are in.”

The open-source nature of Bitcoin permits all miners to see how centralized the network is and if an actor is gaining too much power. The mining community acts as a watchdog; if a miner pool represents a danger to decentralization, the community can disconnect its mining rigs from that determined pool.

Garrido stressed that miners would never permit any mining pool to surpass 50% of the total mining sector, giving it the ability to launch a 51% attack and allowing double-spending. 

The halving is a liquidity shock for miners and the market. Bitcoin’s programmed nature provides predictable behavior that prudent miners will survive. The halving could be understood as a purging of non-efficient miners, which eventually should improve Bitcoin’s mining infrastructure.