Bitcoin's 2020 Halving: Miner Pay Cut to 6.25 BTC Under a $2.3 Trillion Headline

At 19:23 UTC on 11 May 2020, a Chinese mining pool called F2Pool won the race to add block 629,999 to Bitcoin's public ledger. Into the small free-text space that every block carries, it had typed a newspaper headline: "NYTimes 09/Apr/2020 With $2.3T Injection, Fed's Plan Far Exceeds 2008 Rescue". Twenty seconds later, by the blocks' own timestamps, a rival pool, AntPool, produced block 630,000. With that block the pay for running the Bitcoin network was cut in half, from 12.5 new bitcoin per block to 6.25.

It was Bitcoin's third halving, and it landed in strange company. Two months earlier the COVID-19 panic had halved the price of bitcoin in about a day and a half. Four weeks earlier the US Federal Reserve had announced up to $2.3 trillion in emergency loans. On halving day one bitcoin cost about $8,600, according to Coin Metrics, and the new-coin income shared by every miner in the world fell from 1,800 bitcoin a day to 900. At that price, about $15.5 million of daily revenue became about $7.7 million overnight. Nobody voted on it. The rule had been in the code since 2009.

A pay cut written into the rules

Bitcoin has no company and no central bank. Its ledger, the blockchain, is kept up to date by "miners": firms running warehouses of specialised computers that compete to add the next page of transactions, called a block, roughly every ten minutes. The winner of each round is paid in two ways: a fixed allowance of brand-new bitcoin, known as the block reward or subsidy, plus the fees attached to the transactions it includes. Most miners join a pool, a syndicate that combines their computing power and splits the winnings, much like a lottery syndicate at work.

The halving is a clause in Bitcoin's founding rules. Every 210,000 blocks, about every four years, the block reward is cut in half: 50 bitcoin in 2009, 25 from November 2012, 12.5 from July 2016, 6.25 from May 2020. Think of a gold mine whose licence says the yield drops by half every four years whatever the gold price does. At block 630,000 about 18.375 million bitcoin existed, so new supply fell from roughly 3.6% a year to roughly 1.8%. The cap is 21 million coins in total, and no one can raise it without persuading the whole network to change its software.

©CMZ chart. Source: Bitcoin protocol rules

Black Thursday

The halving date had been known for a decade. The pandemic had not. On 11 March 2020 the World Health Organization declared COVID-19 a pandemic. On 12 March, now called Black Thursday, investors sold everything they could turn into cash. The S&P 500 fell 9.5%, its worst day since the 1987 crash.

Bitcoin, often sold as a safe haven, fell harder. On the Bitstamp exchange it opened 12 March near $7,950, closed the day below $4,850, and early on 13 March touched $3,850. Roughly half its value went in about 36 hours. Much of the damage came from borrowed money. On BitMEX, then the largest venue for bitcoin futures (bets on the future price, often made with up to 100 times leverage), more than $700 million of positions were forcibly closed on 12 March, CoinDesk reported, each forced sale pushing the price lower. BitMEX itself went offline early on 13 March. Its chief executive, Arthur Hayes, later blamed two denial-of-service attacks, a flood of junk traffic meant to knock a website over.

Washington answered with money. On 15 March the Fed, under its chair Jerome Powell, cut its main interest rate to near zero and promised $700 billion of bond buying. On 23 March it dropped the limit altogether. On 9 April it said it would provide "up to $2.3 trillion in loans to support the economy". Federal Reserve data show its balance sheet, a rough measure of how much money it has created, grew from $4.16 trillion on 26 February 2020 to $7.17 trillion by 10 June.

The headline in block 629,999

The first transaction in every block is the one that pays the miner, and it includes a short field the miner can fill with almost anything, like the memo line on a cheque. Satoshi Nakamoto, Bitcoin's anonymous creator, used it in the very first block on 3 January 2009 to write: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks." It served as a timestamp, proving the block was not made earlier, and as a statement of motive: money that no government could bail out or print.

F2Pool copied the format exactly: newspaper, date, headline, this time from The New York Times about the Fed's April 2020 rescue package. Wang Chun, F2Pool's co-founder, told CoinDesk the idea was his and that the pool had "carefully" gone through headlines for about two months before choosing one. "History has repeated," he said. "Due to the coronavirus, there has been yet another ongoing wave of bailout[s] just like the one Satoshi had seen in 2008, but bigger in scale, like Bitcoin reinvented." The raw data begins with a fish emoji, the pool's long-standing signature; its Chinese name means fish pond.

The point was the contrast. On the day Bitcoin's code cut new supply in half on schedule, the world's most powerful central bank had created about $3 trillion in three months. Whether that proves anything about Bitcoin is a matter of opinion. It was also good publicity: F2Pool only got the last 12.5-coin block because it happened to win that round. The message is permanent either way. It cannot be edited or removed for as long as the ledger exists.

The miners' arithmetic

For the companies doing the mining, the halving was a straight cut in revenue with the same electricity bill. Machines that had barely paid their way at 12.5 coins a block were losing money at 6.25, and owners switched many of them off. Glassnode, an on-chain data firm, measured a fall of more than 20% in total computing power in the two weeks after the halving. CoinDesk noted that block 630,001, the first under the new rules, took 39 minutes instead of ten.

Bitcoin has a built-in shock absorber for this. Every 2,016 blocks, about two weeks, the network resets how hard the puzzle is, so blocks keep arriving every ten minutes however many machines are running. Explorer data on mempool.space show the difficulty fell 6.0% on 20 May and 9.3% on 4 June, making the remaining machines more profitable, then rose 14.9% on 16 June as miners returned. Fees also rose: Glassnode put them at more than 15% of miner income in the weeks after the cut. At the time, about two-thirds of Bitcoin mining sat in China, according to the Cambridge Centre for Alternative Finance. Both pools in this story, AntPool, run by the mining-machine maker Bitmain, and F2Pool, were Chinese.

What followed

The price did the rest. On 11 August 2020 MicroStrategy, a Nasdaq-listed software company run by Michael Saylor, said it had bought 21,454 bitcoin for $250 million to hold instead of cash, and in September its board made bitcoin its main treasury reserve. Bitcoin passed its 2017 record and crossed $20,000 on 16 December 2020, closed the year near $29,000, and in February 2021 Tesla disclosed a $1.5 billion purchase. The peak came in November 2021: a daily close of about $67,500 on 8 November in Coin Metrics data, and an intraday high near $69,000 two days later. By 31 December 2021 it was back near $46,000.

©CMZ chart. Data: Coin Metrics

Supporters credit the halving. Sceptics point to the money printing that F2Pool's own headline described, and to the popular "stock-to-flow" model, built on halvings, which pointed to about $100,000 in this cycle; bitcoin ended 2021 at less than half that. With only a handful of halvings on record, neither side can prove its case.