Bitcoin Miner Revenues at Risk as Transactions Decline
The sharp decline in Bitcoin transactions is raising serious concerns about miner revenue and the security of the blockchain network. With transaction fees dropping dramatically and block subsidies slashed following the recent halving, miners are facing unprecedented financial pressure.
Bitcoin Transaction Drought
The number of daily Bitcoin transactions has dropped to its lowest level since late 2023, leaving the mempool nearly empty. This has led to a sharp decline in transaction fees—a crucial source of revenue for miners. When the fourth halving occurred in April 2024, the block subsidy was reduced from 6.25 BTC to 3.125 BTC, cutting the income from each block by 50%. This has forced miners to rely more on transaction fees, but with transaction volumes declining, this source of revenue is not enough to compensate.
In addition, the network is witnessing large-scale Bitcoin consolidation. Centralized cryptocurrency exchanges are increasingly moving large transactions instead of many small ones. A single consolidated transaction can move tens of thousands of BTC but only generate a single fee, much lower than the thousands of small transactions that were previously possible.
Large institutions such as MicroStrategy, Bitcoin ETFs, governments, and corporations are also limiting the number of transactions on the blockchain. Currently, Bitcoin spot ETFs in the United States hold over 1 million BTC, with the majority of the assets stored in custodial wallets—requiring very little interaction with the blockchain. As trading activity declines, the total fees received by miners have also plummeted, raising concerns about the sustainability of Bitcoin’s economic model.
Impact on Network Security
Bitcoin miners play a critical role in securing the network by validating transactions and creating new blocks. Their revenue comes from block subsidies and transaction fees. If revenue falls below operating costs—particularly energy costs—many miners may shut down, reducing the network's hashrate.
A falling hashrate makes the network more vulnerable to 51% attacks, in which a group of miners can gain control of a majority of the computing power to manipulate transactions. As the number of miners declines, Bitcoin's decentralization is also affected, undermining confidence in the system.
Long-Term Solutions
To ensure the security and stability of Bitcoin, it is necessary to promote demand for transactions on the network. Factors that can help increase transactions include:
- Participation of individual users: Expanding the ability of Bitcoin to be used for payments and everyday transactions will create incentives for small transactions. - Ordinals and Runes: Methods of recording data on the Bitcoin blockchain such as Ordinals or the Runes protocol could attract new users and generate more transactions.
- Real Assets (RWA) and DeFi on Bitcoin: Tokenizing real assets or implementing decentralized finance protocols on Bitcoin could boost transaction activity.
If these improvements do not happen, miners could continue to be stuck between declining income and increasing costs, threatening the decentralization and security of the $1.88 trillion Bitcoin ecosystem. Stimulating network growth will be key to maintaining Bitcoin's long-term sustainability.
