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Is Bitcoin at risk of becoming centralized? – Let’s see

TL;DR

  • Bitcoin’s mining reward is halving this week, reducing from 900 to 450 bitcoins daily.
  • This event is designed to control inflation by limiting Bitcoin’s total supply to 21 million coins.
  • The reduction in rewards could force smaller, less efficient miners to shut down due to high energy costs.
  • Increased centralization is a risk, as fewer miners could control a larger portion of the Bitcoin network.

Bitcoin’s on the brink of a big event this week, as the reward for mining the cryptocurrency is about to get sliced in half. Previously, miners received 900 bitcoins daily, but come this Friday, that number will plummet to just 450. This is a scheduled event that happens every four years, designed to keep inflation in check by limiting the supply of Bitcoin, which will never exceed 21 million coins.

Crunch Time for Miners

Satoshi Nakamoto, the legendary creator of Bitcoin, crafted these rules to make the coin scarce and valuable. But as we hit the fourth such ‘halving’, not everyone’s celebrating. For miners, the folks whose computers do the heavy lifting to secure the network and process transactions, this halving could spell financial disaster.

Especially for those whose operations gulp down expensive energy. Andrew O’Neill from S&P Global’s Digital Assets Research Lab hit the nail on the head. Less profitable miners may have to shut down, leaving only the big fish with access to cheap power.

This reduction in mining rewards is a fundamental challenge that could shake up how Bitcoin works. Satoshi’s vision was clear, right? A decentralized digital currency, free from the clutches of banks and governments.

Yet, as mining becomes less profitable, there’s a real risk that only a handful of operators will be left. This concentration could lead to what’s feared as a ’51 percent attack’—where one group could potentially take control of the majority of mining and, thus, the blockchain itself.

Fee or Flee?

The halving is pushing the community to a crossroads. To keep their heads above water, miners might start prioritizing transactions that include fees. Currently, these fees are voluntary. Kind of like tipping your server. Not required, but it gets your transaction processed faster.

But with rewards halving, these fees might become the lifeline for miners. However, jacking up fees comes with its own bag of worms. Higher costs could deter people from using Bitcoin for everyday transactions, slowing down its adoption as a regular currency.

The chatter in the crypto community suggests a reluctant shift towards these fees is already underway. Last year, a look at the numbers showed that companies like Marathon Digital were beginning to make a huge chunk of their income from these fees, potentially changing how Bitcoin economics might operate permanently moving forward.

Source: Hashrate Index

Meanwhile, the miners are currently stashing Bitcoins like squirrels prepping for winter. Companies like Marathon Digital, CleanSpark, and Bitfarms have reportedly hoarded about $2.8 billion worth of Bitcoin, gearing up for a post-halving price surge.

It’s a risky game. As Larisa Yarovaya from the University of Southampton puts it, it’s a “game of chicken.” Miners are betting it all on Bitcoin’s price continuing to rise.

The broader scene looks just as shaky.

Analysts are eyeing the aftereffects of the halving, predicting a shift in global mining. With rewards down, miners in search of profit might migrate to places with cheaper energy, like Latin America or Asia.

This could dramatically reshape where and how Bitcoin mining takes place, potentially ushering in a new era of centralization. And, guys, this is exactly what Bitcoin was designed to avoid.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Jai Hamid

Jai Hamid is a passionate writer with a keen interest in blockchain technology, the global economy, and literature. She dedicates most of her time to exploring the transformative potential of crypto and the dynamics of worldwide economic trends.

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