Bitcoin’s High Fees Bring Back Bull Market-Level Mining Revenue, But Not For Long


bitcoin (B T c) Miners, suffering from a brutal crypto winter of 2022, are reaping record revenues as transaction fees on the network soared to their highest level in two years.

A miner’s revenue is made up of two components: the block reward, currently set at 6.25 BTC ($175,000), and transaction fees, which vary based on network demand. Traditionally, or at least since 2017, fees have been less than awards.

However, in recent times there are few bitcoin miners Getting paid more for processing a transaction They are rewarded for creating new bitcoins, partly due to ordinals Etiquette.

Ordinals allow for the inscription of non-fungible tokens and the creation of bitcoin-backed alternative tokens, known as BRC-20s. These tokens have been used to create meme coins, whose value has seen a huge jump in the past week.

Tim Rennie, Treasurer of Greenidge Generation Holdings (GREE), said on Tuesday that transaction fees on bitcoin represent 75% of the current block reward, which currently stands at 6.25 BTC, as opposed to the typical 2%-5%. “This is roughly equivalent to an increase in mining revenue ifbitcoin priceA move to $50,000 from the current $28,000 level,” he said.

bitcoin priceThe last time the 2021 bull market was around the $50,000 level was when miners were bringing in record levels of margin. However, the margin evaporated very quickly, in 2022After the collapse of bitcoin, energy costs soared and capital markets essentially stopped providing new funding.

“The last two days (Sunday and Monday) have been continuous cipher’s Highest revenue day ever. We mined about 21 bitcoins on Sunday and about 24 bitcoins on Monday,” Tyler Page, the firm’s CEO, told CoinDesk.

Read more: Pump BRC: The promise and woes of a bitcoin-backed token

This is a welcome relief for an industry that saw major firms Core Scientist (CORZ) And calculate answer Entering bankruptcy proceedings due to a continuing bear market.

short term expectations

However, the unexpected revenue boom may not last long as users are already looking elsewhere for their transactions due to high fees.

According to Kerry Langlais, Chief Strategy Officer of TeraWulf (WULF), this trend is expected to last for only a week or two.

For example, the use of the Lightning Network, a layer 2 solution for transaction processing, as well as stable coins in some areas, have seen a boom in transactions. Meanwhile, according to TheMinerMag Head of Research Wolfie Zhao, the spike in profitability isn’t enough to encourage miners to ditch their old mining computers to decommission the network.

Read more: Litecoin Transactions Hit Record High As Bitcoin Fees Hike Amid BRC-20 Hysteria

“Publicity [around Ordinals] According to Charles Chong, senior manager of business development at The Foundry, this may not be sustainable” and fees have already fallen 60%-70% from their peak, but it is possible that use cases will demand block space. increases, so the fees will also increase.which operates world’s largest mining pool and is owned by CoinDesk’s parent company, Digital Currency Group.

Ethan Vera, chief operating officer of mining services firm Luxor Technologies, said that even if the promotion stops, “a high base demand is established on the mempool which results in higher transaction fees for miners.” Mempools are essentially waiting rooms for bitcoin transactions.

mining pool for testing

Sudden fee hikes have also put mining pools to the test as they revenue structure There has been a huge change.

About 17%-25% of their revenue contribution in May came from transaction fees, as opposed to a range of 1%-3% in the case of the rest of 2023, according to TheMinerMag’s Zhao.

According to Foundry’s Chong, this unexpected change resulted in the need for pools to hold more bitcoin reserves. “For FPPS [full pay per share] pools, this means they need to hold more BTC reserves as the pool luck component is eroded by the higher fees, meaning if a pool is unlucky during this period, it could result in miners paying a bigger loss. pay the fee which he did not collect. They said.

ffps pool method Foundry USA Also uses for payment, sharing transaction fees with miners based on how much hash rate they contribute, based on an estimated average transaction fee for a given time period. Colin Harper, head of content and research at Luxor, explained that this means the pool should hold more bitcoin in reserve in case it gets unlucky and the user doesn’t win enough blocks with enough revenue to meet the payout. .

At the same time, mempool congestion and rapid changes are challenging the pool’s technology because they have to “quickly adapt transaction ordering and maximize fee reward to clients,” Chong said.

road ahead

One possible silver lining of this short-lived event is that it gives bitcoin miners a glimpse into the future, when the bitcoin network will eventually stop giving out block rewards. sometime around 2140At which point the miners would only bring in transaction fees.

“While it is ultimately up to the market to determine the sustainability of this new application [Ordinals]We see this as a positive long-term development for bitcoin’s security budget as block rewards will eventually run out and miners will rely solely on transaction fees for compensation,” said analyst Bill at investment bank Stifel GMP in a research report. Papanastasio wrote.

The defeat of transaction fees also shows the importance of miners to the integrity of the entire network.

TeraWulf’s Langlais said, “Without mining there is no BTC,” and miners will be well-compensated in the future as bitcoin usage grows.

Read more: Bitcoin community splits over current debate over NFT project ordinals

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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