The Impact of the Rise in Bitcoin Block Space Demand on Miner Income

The Bitcoin halving will lead to a reduction in miners' main sources of income. To address this challenge, miners are investing in more efficient equipment and preparing for a decline in production. However, transaction fees are expected to rise significantly due to the atypical use of Bitcoin block space, which may offset the income reduction caused by the halving of block rewards.

Recently, the revival of projects based on the Bitcoin network (, such as on-chain markets, collectibles, and multi-layer platforms ), has led to a surge in trading demand. These projects also provide miners with new income strategies, such as extractable value ( MEV ) and transaction accelerators, leveraging significant changes in the Bitcoin trading market.

During the upcoming halving period, transaction fees are likely to become the main source of income for miners. The expected rise in transaction demand may offset nearly half of the halving's impact on fee revenue, approximately 43%.

Emerging Trends in Bitcoin Transaction Demand

( Homogeneous Token Standard

Early attempts to introduce new assets on Bitcoin were creative but not mature enough. Projects like Counterparty, Colored Coins, and Mastercoin drove significant innovations in the cryptocurrency space, but failed to gain widespread adoption in the Bitcoin community.

However, the demand for external assets has risen again. Although the new attempts have not solved past challenges, the current market environment is different. The increased awareness of Bitcoin, the rise in venture capital, and the speculation frenzy around meme coins have all driven this trend.

The new Bitcoin token projects have brought significant rise in trading demand. For example, BRC-20 assets have generated over $180 million in fees for issuance and transfers since their launch in March 2023. These transactions account for nearly one-third of all Bitcoin transactions, generating fees that make up 17% of the network's total fees.

The newly launched Runes standard also shows strong initial demand. The market demand for future Runes tokens has exceeded $1.2 billion. When BRC-20 assets were first issued, the fee levels soared to over $16 per transaction, exceeding 300 BTC daily.

If the trading demand for Runes tokens at launch is similar to that at the first release of BRC-20, then fees are likely to reach 150 Bitcoins per day, which will offset one third of the reduction in mining revenue caused by the halving.

![CoinShares: BTC Miner Economics in the Post-Halving Era])https://img-cdn.gateio.im/webp-social/moments-d9c0f80b344a0d097923e4027295e63d.webp###

( collectibles

The Ordinals protocol allows users to track the smallest unit of Bitcoin, ) satoshis ###, and assign it an ordinal number. Users can also enhance the uniqueness of satoshis by attaching a data file ( known as an inscription ). This allows many tiny Bitcoin units to be designated as images, text, or even complete video game files.

Some Satoshis have gained high collectible value due to their digital significance or associated inscriptions. For example, an inscription from "Genesis Cat" was sold for $240,000, while another Satoshi from the first difficulty period of Bitcoin was transacted for $165,100.

Given that halving is a predictable and scarce event in Bitcoin's history, it is expected that there will be fierce competition in collecting Satoshis and inscribing the inscriptions of the first block after the halving, which will almost certainly lead to skyrocketing fees.

( Privacy Trading

The transaction accelerator ), like Marathon's Slipstream ###, provides users with a way to bypass the Bitcoin mempool. Although these accelerators are not yet widely popular, they may indirectly increase transaction fees. If enough transactions flow to these accelerators, a dual fee market could emerge, featuring both public and private fees, leading to an increase in costs.

( Miners can extract value ) MEV ###

The importance of MEV in Bitcoin is increasing. The high value of collectibles, the emergence of tokenized assets, and the rise of Bitcoin plugins provide miners with opportunities to earn extra profits by manipulating transaction orders. As block rewards decrease, miners may actively explore MEV strategies.

Evolution of the Transaction Fee Market

The diversification of Bitcoin transaction demand could become a savior for the mining economy. New uses for block space are expected to significantly increase transaction fees, thereby offsetting the loss of block rewards.

Currently, transaction fees are expected to account for about 14% of mining revenue after the halving, a figure that has already multiplied several times over the past few years. If the fee level reaches the average of 193 BTC per day over the two-month period at the end of 2023, it will be able to cover 43% of the halving impact.

During this halving period, transaction fees are likely to become the main source of income for miners. However, the sustainability of these non-monetary demand drivers remains to be seen, and whether they represent a long-term shift in the Bitcoin trading market or are merely a temporary phenomenon of a bull market will require time to verify.