The main cryptocurrency, bitcoin, is preparing for an event that occurs roughly every four years: the halving (“division by two”, in French). It should take place this Friday April 19 or Saturday April 20. What is this rule and what consequences does it have?
In the world of bitcoin, in addition to the buyers and users of this currency, there are key figures: the miners. They are the ones who record and guarantee transactions. To do this, they must resort to numerous computer calculations, which consumes a lot of electricity. The most important mining companies are large companies listed on the stock exchange (like Marathon, Riot, or Hut 8, to take only the case of the United States). These miners are rewarded in bitcoin. “ Until today, this reward was 6.5 bitcoins per block (per “mined” unit). From this Friday or Saturday, it will be halved to 3,125 bitcoins », explains Bruno Biais, professor of economics and finance at the HEC business school in Paris. The fact that this reward is halved explains why we speak of halving in English.
A rule created to “avoid inflation”
Bitcoin is a currency. Its value is therefore based on trust, recalls Bruno Biais. “ The risk for a currency is that it loses its value. To avoid this, we must ensure that the quantity of money created is limited. THE halving limits the creation of new bitcoins and helps maintain the value of bitcoin “, he emphasizes.
This rule of halving was put in place during the early days of bitcoin. It has already been applied four times and will repeat itself every four years until 2140. Then, if the rules do not change, no new bitcoins will be created. At the current price, bitcoins already issued represent more than $1.1 trillion.
Bitcoin mining companies will be paid less
For people who have bitcoins, the halving has no direct impact. On the other hand, the reward for miners and companies dedicated to this activity will be halved. Mining companies have been preparing for this for a long time, such as BigBlock, a mining company established in France, the DRC, Paraguay and soon in Ethiopia. “ There is nothing we can do to counter the halving, we know it’s going to happen and so we’re not surprised. Every day, well before halving, we work to find the cheapest kilowatt hours possibleexplains Sébastien Gouspillou, its president and founder. We travel around the world looking for cheap electricity. In our case, we only buy surplus electricity, which cannot be sold elsewhere » and therefore cost less, he says.
The bitcoin industry is very energy intensive. THE New York Times thus calculated that one of the largest bitcoin mining plants in the United States used as much electricity as 300,000 Americans. The drop in miners’ income caused by the halving pushes them to look for ever cheaper energy so that their activity remains economically viable. This explains why bitcoin relies heavily on electricity from coal-fired power plants, which is inexpensive but very polluting. In the United States, the cryptocurrency industry relies 85% on fossil fuels. In other countries very important for the sector, such as Kazakhstan, bitcoin mining also creates strong tensions on the electricity networkwhich pushed Astana to further regulate this activity after 2022.
What future for companies in the sector?
Bitcoin has lost more than 10% of its value since the start of the month. But the currency had increased so much this year that Sébastien Gouspillou benefited from it. In fact, bitcoin has almost doubled over the past three months, which compensates for the halving of the number of bitcoins that will be paid to miners. The biggest companies in the sector still mined as much as they could before the halving. “ In the long term, what will determine the income of miners is above all the price of bitcoin », says Bruno Biais. These companies need a rise in prices to continue to be profitable.
A gamble, because like any currency, bitcoin has experienced and may continue to experience crises. “ What will determine the survival and success (or not) of bitcoin will be the usefulness of this currency » for users, believes the professor of economics and finance. “ Bitcoin will be useful if it allows you to continue making payments without going through institutions » classic financial, he specifies, particularly in countries affected by hyperinflation or devaluations.
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