The Rise in Bitcoin Block Space Demand and Its Impact on Miner Revenue

The Bitcoin halving will lead to a decrease in the main source of income for miners. To cope with this challenge, miners are investing in more efficient equipment and preparing for a decline in output. However, transaction fees are expected to increase significantly due to the unconventional use of Bitcoin block space. These fees are becoming an increasingly important component of mining revenue, and may even offset the income loss caused by the halving of block rewards.

Recently, due to the rise of non-monetary use cases, projects based on the Bitcoin network ( such as on-chain markets, collectibles, and multi-layer platforms ) have led to a surge in trading demand. These projects have also paved the way for other new revenue strategies, such as miners extracting value ( MEV ) and transaction accelerators, which leverage significant changes in the Bitcoin trading market. In the upcoming halving cycle, transaction fees are likely to become the main source of income for miners. The expected growth in trading demand may offset nearly half of the halving's impact on fee revenue, around 43% (.

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Non-traditional Drivers of Bitcoin Transaction Demand

) Homogeneous Token Standard

The early attempts to introduce new assets in Bitcoin laid the foundation for applications like Ethereum, but they failed to gain widespread adoption within the Bitcoin community. However, the demand for external assets has risen again. Although the new attempts have not addressed the challenges of the past, the current market environment is different. Bitcoin's recognition is higher, venture capital has increased, and even the meme coin speculation craze has contributed to this trend.

Some new Bitcoin token projects have brought significant rise in trading demand. For example, BRC-20 assets have generated over $180 million in transaction fees since their launch in March 2023, accounting for nearly one-third of all Bitcoin transactions.

A new standard called Runes is about to be launched, with increasing demand and attention in its early stages. The market value for future Runes tokens has exceeded 1.2 billion dollars, accounting for half of all BRC-20 assets. The issuance of Runes tokens must use Bitcoin transactions, which may bring a significant demand for transactions during the halving.

If the trading demand is similar to that at the initial launch of BRC-20, then the fees could reach 150 Bitcoin per day, offsetting one third of the reduction in mining income caused by the halving.

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) collectibles

The Ordinals protocol allows users to track the smallest units of Bitcoin, ### satoshis (, and assigns them an ordinal number. Users can also choose to attach any data file to these units, called inscriptions. This gives certain satoshis collectible value due to their digital significance or related inscriptions.

Some Satoshis have reached astonishing auction prices. For example, the "Genesis Cat" inscription sold for $240,000, while another Satoshi without additional inscriptions was sold for $165,100 due to its traceable origin to the first difficulty period of Bitcoin.

This collectible value may change some users' tendency to pay transaction fees. Given that halving is a predictable and scarce event in Bitcoin's history, the demand for the first minted bits is expected to be very high, which may lead to a surge in fees.

) Privacy Transaction

Transaction accelerators and other products provide users with a way to bypass the Bitcoin memory pool. Although these accelerators have not yet become widely popular, they may indirectly increase transaction fees. Since some transactions are submitted directly to miners, this may lead to confusion among users regarding the required fees, potentially pushing costs higher.

Miners can extract value ### MEV (

MEV is becoming increasingly apparent in Bitcoin. Emerging applications such as collectibles, tokenized assets, and Bitcoin plugins are creating additional revenue opportunities for miners. With the block rewards decreasing again, miners may become more proactive in seeking diversified income streams, including exploring MEV strategies.

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The relationship between the transaction fee market and miners is becoming increasingly close

The diversification of Bitcoin transaction demand may become a savior for the mining economy. New uses for block space could significantly increase transaction fees, helping to offset the loss of block rewards and maintain miner profitability.

Currently, transaction fees are expected to account for about 14% of mining revenue after the halving, which is several times what it has been in recent years. However, this proportion may rise further, and in certain blocks, it could even exceed 50%. If we simply replicate the average fee level from the last two months of 2023, which is ) daily 193 BTC (, it could cover 43% of the halving impact.

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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; whether they represent a long-term shift in the Bitcoin trading market or are merely a temporary phenomenon of the bull market will take time to verify.

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