The crypto-asset industry is facing something of a frenzy as BTC approaches its fourth block reward halving. This has led to increased discussions around scaling and economic sustainability.
BTC’s volatility is widely recognised, characterised by abrupt price spikes and rapid downturns capable of erasing millions of dollars in value within minutes. However, this frenzy is being driven by something altogether different – the upcoming halving.
Understanding the halving
Put simply, the halving is a planned reduction in the block subsidy part of the block reward processors receive. Halvings occur every 210,000 blocks of transactions. As per its name, each halving event halves the amount of bitcoin processors received as the block subsidy part of the block reward.
At Bitcoin’s inception in 2009, processors were rewarded with 50 Bitcoin per block. However, this reward was halved to 25 in the first halving in 2012, further reduced to 12.5 in 2016, then to 6.25 tokens in 2020, and is slated to decrease to 3.125 coins in 2024.
Similarly, the BSV blockchain will have its block subsidy cut in half a little before BTC’s (because BSV is ahead in block publishing).
The problem facing BTC and similar blockchains
With its 1MB block size limit, BTC either needs to significantly increase the coin price or undergo a protocol change to raise its block size limit (to increase the potential fees generated per block) – a significant undertaking which will have serious ramifications for the underlying blockchain and associated projects.
Another option which has been suggested by a few BTC core developers to solve this economic problem is for a protocol change to simply increase the total amount of BTC coins to higher than 21m while locking in the diminishing block subsidy at its current rate (3.125).
BTC imposes a 1MB size limit on blocks, with an average interval of approximately 10 minutes between blocks. This restriction on block size constrains the number of transactions that can be included, resulting in volatile fees and rendering the network less usable. Gradually, fees will have to escalate to fill the void left by the diminishing block subsidy.
However, the capped block size limits how many transactions can be included. If the transaction fee portion of the block reward is unable to rise to replace the lost revenue in the block subsidy, chain death could occur.
A chain death scenario arises when the income from block rewards fails to cover the operational expenses of transaction processors. This situation becomes critical if transaction fees cannot compensate for the decreasing subsidy revenue. Consequently, processors may withdraw support for the network, leading to a potential halt in block addition.
“Block reward is better understood as block subsidy, incentivising miners while transaction volumes and respective fees will increase with growing adoption,” said Frank Dickob, Provisioning Director at BSV Blockchain.
“Should adoption and/or technical performance/scale not materialise, miners might have to increase fees, impeding large-scale adoption, or leave the network. Not scenarios we are considering as we have the best technology, ultra-low transaction fees and are on the path to unbounded scale.”
Teranode and scaling on the BSV blockchain
BSV Blockchain is committed to ensuring the BSV network can meet the long-term demands of processors. This includes a long-term scaling strategy, which extends beyond merely enlarging block sizes to accommodate more transactions as it seeks to shift from block rewards to transaction fees as the primary processor incentive, all while avoiding imposing high transaction fees on consumers.
“Halving events ensure that we’ll ultimately reach the predetermined, inflation-free number of coins,” said Dickob.
“The BSV Blockchain ensures technology is built that is unbounded in scale. This includes Teranode, complemented by overlay services and robust SPV solutions resulting in a new performant network topology that will soon be able to process magnitudes more transactions.”
The BSV Blockchain is also proactively preparing its ecosystem partners for such a future through stress tests, on-chain tournaments driving significant transaction volumes, and multiple endeavours to break world records for on-chain activity by rigorously testing infrastructure and client software on the network.
In January, the BSV Blockchain R&D team announced groundbreaking features for Teranode that will significantly boost network efficiency and speed, pushing BSV’s capabilities to one million transactions per second in the not-too-distant future.
These technological advancements will facilitate widespread transactions on blockchain infrastructure, facilitating data processing at an unprecedented level and significantly reducing costs compared to traditional methods. This will also establish a more secure financial ecosystem.
Teranode addresses the challenges of processing massive transaction volumes enterprise-grade volumes faced by other blockchains by providing high-capacity transaction nodes tailored for enterprises and governments.
Teranode was recently extended and sustained testing on a Proof of Concept implementation began at the end of February, with a full node release later in 2024. This is a ground-up rewrite of the BSV Blockchain architecture, combining horizontally scalable microservices into the full functionality set required to process transactions at magnitudes higher volumes.
The network topology upgrade including Teranode is critical for the BSV blockchain’s unbounded scaling potential and will deliver faster, more secure and cheaper transactions for all.
