Bitcoin Block Space Demand Rise and Its Impact on Mining Revenue

Bitcoin halving will significantly reduce miners' primary source of income. To address this challenge, miners are actively preparing, including investing in more efficient equipment and getting ready for a decrease in output. However, there are signs that transaction fees may increase significantly due to atypical usage of Bitcoin block space, which could offset the income loss from 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 not only increase transaction fees but also open up new income strategies for miners, such as Miner Extractable Value (MEV) and transaction accelerators. These strategies leverage 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 (about 43%) of the halving's impact on fee revenue.

The New Trend of Bitcoin Trading Demand

Homogeneous Token Standard

New Bitcoin token projects are bringing significant growth in trading demand. For example, BRC-20 assets have generated over $180 million in issuance and transfer fees since their launch in March 2023. These transactions account for nearly one third of all Bitcoin transactions, with the fees representing 17% of the total fees on the Bitcoin network.

A new standard called Runes is being launched, and the future token demand market value has exceeded 1.2 billion dollars. The issuance of Runes tokens must use Bitcoin transactions, which may trigger a large amount of transaction demand during the halving.

collectibles

The Ordinals protocol allows users to assign uniqueness to the smallest unit of Bitcoin (satoshi), turning it into a non-fungible collectible. Certain satoshis have gained high value due to their digital significance or associated inscriptions, with the highest auction price reaching $240,000.

Halving, as an important event in Bitcoin's history, is expected to trigger fierce competition for the first minted bits, which may lead to a surge in transaction fees.

Privacy Trading and MEV

New products like transaction accelerators provide users with a way to bypass the Bitcoin mempool, potentially increasing transaction fees indirectly. At the same time, Miner Extractable Value (MEV) has become an emerging dimension of demand for Bitcoin block space, creating additional revenue opportunities for miners.

Evolution of the Transaction Fee Market

The diversification of Bitcoin transaction demand may become the salvation of the mining economy. The anticipated new uses of block space are expected to significantly increase transaction fees, which are crucial for miners as these fees can offset the losses from block rewards and maintain profitability.

Currently, transaction fees are expected to account for about 14% of mining revenue after the halving, which has already increased several times compared to the past few years. However, this proportion may further rise and could even exceed 50% in certain blocks.

Looking ahead, during this halving period, transaction fees are likely to become the primary 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, can only be validated by time.