Opinion: Bitcoin halving could accelerate consumer adoption of Bitcoin

Author: David Bailey, CoinDesk; Compiled by: Deng Tong, Golden Finance

As the crypto world goes into a frenzy over the upcoming Bitcoin halving and the price of Bitcoin (BTC), take a moment It’s important to reflect on reality.

For the vast majority of people in the world, the halving is not a big deal.  

On-chain Bitcoin transactions are processed by a vast network of so-called "miners" who verify and record transactions on the blockchain. To date, these miners receive two types of rewards: Block rewards paid by the Bitcoin network, and by traders in Bitcoin Pay network transaction fees.

The upcoming “halving” cuts rewards in half. This is not surprising. Rather, halvings are a scheduled part of the system designed to regulate the supply of new Bitcoins in a predictable manner until a maximum of 21 million Bitcoins have been issued. Sometime in the next century, given current trends, the block reward for processing Bitcoin payments will be halved until it approaches zero.

But the result of the block reward reduction has a substantial impact on the second network transaction fees. The increase in transaction fees is a stark reminder that Bitcoin’s supply is limited by design. Once 21 million Bitcoins have been issued (as block rewards), no one can create more Bitcoins or change the supply, as governments often do with their own fiat currencies.

This is why some people compare Bitcoin to "digital gold" . It’s a nice comparison, but there are two important differences to remember: First, Bitcoin’s supply is fixed at 21 million Bitcoin. The supply of gold is limited but not fixed and known. After all, who knows what huge gold reserves may be discovered tomorrow?

Secondly, Bitcoin is infinitely divisible. As Bitcoins become more valuable, people will make transactions that break down the value (for example, one Bitcoin has 100 million satoshis). Gold is physical and you can't subdivide it infinitely as it will become more valuable, although new digital gold entrants are trying to make gold behave more like Bitcoin.

The halving is a reminder that the supply of Bitcoin is indeed limited, while demand is increasing, pushing up the price of Bitcoin in the long run. When something becomes more valuable, more people will want to use it, and the cycle continues.

In the short term, the biggest day-to-day impact of the halving will be a wider consumer shift towards lower transaction fee costs Low processor. Enter the Lightning Network, a Layer 2 network that conducts Bitcoin transactions outside of the main blockchain. The Lightning Network processes peer-to-peer Bitcoin transactions almost instantly, just like on the main blockchain.

Transaction fees on the Lightning Network are only a few cents. For ordinary people – those who make small transfers or use a bit of Bitcoin to purchase goods and services – this will become the preferred method of transaction; it’s fast and cheap. The relative ease of Lightning Network transactions may also accelerate consumer adoption.

Of course, on-chain transactions will not disappear. People will continue to use blockchain to record large transactions—like buying a car or a home using a wire transfer instead of a debit card.

As on-chain network transaction fees continue to increase, network congestion will be offset by the shift to Layer 2 networks, which in turn will encourage greater transaction volume, some of which will occur on the main On-chain, this will drive up transfer fees. Ultimately, even as Layer 2 networks like the Lightning Network take off, the end result is likely to be a steady increase in network fees as Bitcoin becomes more widely adopted.

This is a good thing.

The more Bitcoin resembles other currencies, the more willing people will be to use it. While most of us are not miners, many of us are currently economically disenfranchised: today, more than 1 billion adults in the world have smartphones but no bank accounts . These people are digitally connected to the rest of the world but lack the benefits of participating in the global financial system.

For them, Bitcoin is a powerful solution for their daily expenses or personal savings – but only if It's fast, reliable, cheap and easy to use. The halving spurred the adoption of Layer 2 networks such as the Lightning Network, making using Bitcoin a reality.