The Halving Highlights Why Bitcoin Needs to Upgrade

In mid-April of this year, Bitcoin will undergo its most recent halving event, meaning a 50% reduction in rewards for miners. Generally speaking, this event is seen as bullish for bitcoin, and the halvings of the past have all been followed by significant gains in the price of bitcoin. Of course, this comes at the immediate cost of revenue for those mining the asset.

Bob Bodily is the Provo, Utah-based CEO and Co-Founder of Bioniq, a BTC Ordinals marketplace. This op-ed is part of CoinDesk’s “Future of Bitcoin,” package published to coincide with the Halving in April 2024.

This time may be different, though. The recent implementation of new protocols that offer enhanced functionality, as well as the billions of dollars of inflows to bitcoin ETFs, has changed the nature of the market and demand for this asset. Post halving, we may see activity on the network unlike ever before, driving up fees and helping to compensate for the reduced block rewards.

However, to capitalize on this, what is needed now is a change to Bitcoin on a fundamental level, one that can fix the very issues holding back broader adoption.

The latest halving comes amid significant developments for the asset and protocol, most notably, the proliferation of Bitcoin Ordinals and BRC-20 tokens over the previous year. These assets are already understood as effectively being NFTs that work on top of Bitcoin, and they have unlocked new functionality for the ecosystem that was never possible before.

The popularity of these new digital goods could have a major impact on what happens to miner revenue in the wake of this halving. While this event itself is slashing returns for mining blocks, Ordinals and BRC-20s are driving up network fees, as they are relatively expensive to inscribe and trade.

What’s more, this halving will see the launch of a brand new type of asset on Bitcoin, Runes. Runes, developed by Casey Rodarmor, the inventor of Ordinals, enters the fray as a similar but new evolution of the idea of building assets on top of the existing blockchain and are designed to be a much more efficient way for users to issue fungible tokens on the network.

Despite their efficiency, Runes still represent yet another type of asset that will be in-demand in the post halving era, further driving up Bitcoin blockspace demand, network activity, and, subsequently, miner fees. Taken alongside the recent influx of funds from ETFs, this situation stands to offset, if not entirely replace, the income that previously was generated from mining rewards alone. The result could be that this halving may not affect miners the way previous ones did, possibly augmenting how the market ultimately responds.

The high fees may be good for miners, but they also stand to drive development to the fragmented world of Layer 2s, ultimately siloing liquidity and harming the end-user experience. Higher fees could also impede adoption globally, especially among price-sensitive users in developing countries who may need bitcoin the most.

To unlock the possibilities that the best talent in Web3 has to offer, developers need to be given the tools to build easily, efficiently and interoperably on top of Bitcoin. However, to achieve this, changes will need to be addressed at a Layer 1 level.

Fortunately, there are some paths forward being explored right now that aren’t built on Layer 2’s. For example, there has been a proposal to reintroduce the “OP_CAT” opcode that would allow for multiple script variables to be concatenated into one, which would significantly improve the ability for developers to build on top of the network and deploy new services in a highly efficient manner.

This comes alongside another proposal for implementing what is known as CTV, which makes it possible to set constrictions around how a Bitcoin transaction is spent. Taken together, these potential updates represent a Layer 1 blockchain that is simultaneously more efficient and safer to build on, which should attract new development.

Out of all of the potential op_codes that we could add to Bitcoin, CTV and CAT are the top two contenders. Among developers, CTV is the no-brainer upgrade for Bitcoin. It is simple, elegant, and adds meaningful functionality to the network with covenants. Unfortunately, CTV has faced some political issues in getting widespread support. Then we have groups like the Taproot Wizards, who released an ordinals cat collection, the Quantum Cats, specifically to drive attention to OP_CAT and push the network to get CAT officially added. CAT was originally in Bitcoin (removed early on), is only 10 lines of code, and has significant support for adoption across all the major groups within Bitcoin.

There’s no guarantee that these proposed updates to Bitcoin will be the accepted, or final, solution to bringing better functionality and adoption to Bitcoin. That being said, they put the blockchain in the best possible position to get the most out of the implementation of new protocols like BRC-20 and Runes. If enabled soon, it could mean the difference between a slight offset to the reduced mining rewards, and a complete boom in fees that sees miners more profitable than before. The community should be paying attention, because this distinction may have huge ramifications for the very future of Bitcoin itself.

Edited by Benjamin Schiller.

 

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