The Bitcoin halving math

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Introduction

As Bitcoin approaches its fourth block reward halving, where miners will receive a 3.125 bitcoin reward per block, discussions are heating up around the economic sustainability of both BTC and the BSV blockchain (BSV). As the rewards decline, transaction fees must step in to fill the gap. Let’s spend a little time unpacking the math behind these two polar opposites in the Bitcoin antagony, and put forth how each network could sustain itself financially vs how they could end up destroying each other in a Red Queen game.

The 50 Bitcoin benchmark

Initially, Bitcoin blocks came with a 50 coin reward. This hefty reward has now dwindled, making transaction fees increasingly important for miners while all chains have failed to produce a single block that has ever replaced the initial 50 coin subsidy. To understand how each network plans to sustain itself, let’s focus on 50 coins per block as the first benchmark.

The numbers game in BTC

The average size of a Bitcoin transaction is approximately 250 bytes. With a block size limit of 1MB for BTC, a block can contain about 4000 transactions per block under perfect circumstances. There are some hacky ways to make the block up to 4MB, but we have never seen a BTC block go over 5,000 transactions per block because of the imperfect nature of a public network.

For the sake of math, let’s assume perfect conditions and a hard 1MB limit.

At the current price of $35,000 per BTC, the total block reward after the next halvening would be:

[ 3.125 X $35,000 = $109,375]

This figure doesn’t include transaction fees, but if we take high side of the average transaction fee at about $2.00 per transactions multiplied by 4,000 transactions per block, you only add about $8,000 (or about 0.23 BTC) in revenue to the block for a max grand total of $117,375.00 (or 3.348 BTC) per block. BTC, without significant changes to the protocol, cannot get to 50 coins per block.

The BSV scalability strategy

BSV will have its subsidy cut in half a little before BTC’s because BSV is ahead in blocks. Contrary to BTC’s predicament with hard-coded bandwidth limitations, BSV can mine blocks that continue to accumulate at least 6.25 coins per block in fees by accepting more transactions per block. Of course, this presumes demand for block space, but there’s no technical throttle to such a thing happening.

Technically, BSV could scale up to 50 coins (or more) per block in total revenue. Let’s look at the math.

In BTC, the average fee is a few sats per byte. In BSV, it’s much closer to 1 sat per kilobyte; a massive savings! But it also means that a lot more transactions are needed in order to get to 50 coins worth of fees per block. That would equal something nearing 5 BILLION transactions in a block.

Presuming 250 bytes per transaction, that’s 1.25 terabytes!

Revenue per BSV block

Assuming a price of $50 per BSV, the total revenue from a 50-coin block would be:

[50 BSV X $50 + (3.125 BSV X $50) = $2,656.25]

At even a minimal 10X price jump from $50, a $500 coin would net $25,000 in fees alone – heavily outstripping the subsidy, and this total could go up exponentially as people bid up transaction fees for priority processing.

There’s also the likelihood of BSV fees being higher than the absolute baseline. If the average fee is 500 sats/kilobyte, which is completely conceivable, the reward, in fees, for mining such a block would be 25,000 BSV.

You read that right! At $50 per coin, that’s $1,250,000 in revenue per block even at such a low price per coin.

Feel free to do your own math from here to measure the scope of the opportunity.

Conclusion: A fork in the road

BTC and BSV are at a crossroads:

• BTC: With its 1MB block size limit, BTC either needs to significantly increase the coin price or undergo a protocol change in order to raise its block size limit—something that would undermine a decade of rhetoric about never doing such a thing. This is why BTC’s biggest advocates are so cozy with the iFinex/Tether cabal to pump the price.

• BSV: It needs to handle massive blocks within the 10-minute block time and achieve a huge volume of micro-transactions to become economically sustainable. This is no small task. On 2009 computers with the original software, this would be impossible. But with modern multi-threaded computing and heavily optimized software, blocks that are many terabytes in size could quickly become the norm across the BSV network.

Both approaches have their challenges, but they share the same goal: a secure and economically viable network. As we move closer to the next halving, the strategies that each network adopts could be the deciding factor in their long-term success or failure. Therefore, when you next transact in BTC or BSV, know that you’re part of an unfolding, financial experiment.

The Darwinian equation in the duel of blockchains

Both BTC and BSV, bound by the commonality of the SHA-256 algorithm, engage in a precarious ballet of hash value arbitrage governed by miner allegiance, profitability, and the immutable laws of computational expenditure weighted against a long tail conversation about common law, property rights and the power of the state. As miners oscillate between these blockchains, they unwittingly participate in the Red Queen’s Game, a ceaseless contest to ultimately orphan all competitors and absorb their value before growing it exponentially.

Herein lies the paradox: rapid shifts in miner loyalty could act as the catalyst for a chain death for either ecosystem, and so while we compete, we dance together with the knowledge that at some point, one chain must die. It’s a Darwinian reality; a mathematical inevitability that dares to question the resilience and sustainability of two intertwined yet diverging destinies, and all of these things are demanded by the fact that the halving is an adoption subsidy and should be perceived as a ticking time bomb for BOTH BSV and BTC.

Act accordingly.

Watch: How Teranode enables unbounded scaling