Bitcoin Block Space Demand Surge and Its Impact on Mining Revenue

Bitcoin halving will lead to a reduction in the main source of income for miners, forcing them to invest in more efficient equipment and prepare for declining profits. However, due to the unconventional usage of the Bitcoin network, transaction fees are expected to increase significantly. These fees are becoming an increasingly important part of mining income and may even offset the reduction in income caused by the halving of block rewards.

Recently, the rise of projects based on the Bitcoin network (such as on-chain markets, digital collectibles, and multi-layer platforms) has led to a surge in transaction demand. These projects have also paved the way for new revenue strategies, such as Miner Extractable Value (MEV) and transaction accelerators, leveraging significant changes in the Bitcoin transaction market.

In the next halving period, transaction fees are likely to become the main source of income for miners. At the same time, the upcoming increase in transaction demand may offset nearly half (about 43%) of the impact of the halving on fee income.

New Trends in Bitcoin Trading Demand

Homogeneous Token Standard

Early attempts to introduce new assets on Bitcoin, while creative, had limited results. However, the demand for external assets has risen again. The new projects have not fully addressed past challenges, but the current market environment is different. Increased awareness of Bitcoin, a rise in venture capital, and a speculative frenzy have all driven this trend.

For example, since the launch of BRC-20 assets in March 2023, they have generated over $180 million in transaction fees. 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 its initial demand is significant. The market demand for future Runes tokens has exceeded $1.2 billion. When the Runes tokens are released, there may be a large trading demand generated at the same block height as the halving.

Digital Collectibles

The Ordinals protocol allows users to track the smallest unit of Bitcoin (Satoshi). Users can attach data files to specific Satoshis, known as inscriptions. This gives certain Satoshis collectible value due to their digital significance or related inscriptions.

Some smart auction prices have reached astonishing levels, such as the "Genesis Cat" inscription at $240,000. Such high-value transactions may influence users' tendency to pay transaction fees, driving up the overall fee levels.

Privacy Transactions and Transaction Accelerator

Some mining pools have launched transaction accelerator services, allowing users to communicate directly with the mining pool and pay transaction fees. Although these services have not yet become widely popular, they may indirectly raise the overall fee levels and create a multi-party fee market that coexists with both transparency and privacy.

Miner Extractable Value (MEV)

As the trading model of Bitcoin becomes more complex, the importance of MEV in the Bitcoin network may increase. The rise of collectible trading, tokenized assets, and Bitcoin plugins has created new profit opportunities for miners.

Evolution of Transaction Fee Markets

The diversification of demand for Bitcoin transactions may play a key role in the mining economy. New use cases may significantly increase transaction fees, helping to offset the losses caused by the reduction in 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. In the future, this proportion may further increase, and in certain blocks, it could even exceed 50%.

Looking back at the last two months of 2023, mainly due to high demand for inscriptions, the average fee level accounted for 30% of the mining income after the halving. If this level is maintained, it could cover 43% of the halving impact.

Considering the current development trends, during this halving period, transaction fees are likely to become the main source of income for miners. However, the long-term sustainability of these non-traditional demand drivers remains to be seen. Whether they represent a fundamental shift in the Bitcoin trading market or are merely a temporary phenomenon of a bull market will require time to verify.