Crypto Countdown

Sometime in April, the rewards for mining bitcoins will be cut in half. Currently, crypto mining companies – operating in numerous locales worldwide and all racing against each other to process huge amounts of transactional data that can lead to a big financial win – receive 6.25 bitcoins, valued at roughly $320,000 as of the time of writing, when unlocking a portion of the blockchain. But come the halving, the price will drop to 3.125 bitcoins, a full 50-per-cent reduction. To an outsider this might seem unfair, if not entirely arbitrary. 

Indeed, no central authority approves a bitcoin halving, three of which have happened before: in 2012, 2016 and 2020. But the process is baked into cryptocurrency’s very code. It exists largely to push bitcoin’s valuation to even greater heights. 

But what does the halving mean for bitcoin holders and miners? And how about the rest of us? 

These are questions pondered by a team of York faculty and students studying digital currencies from a variety of perspectives.  Supported by York University’s Catalyzing Interdisciplinary Research Clusters initiative, the crypto scholars are mapping the locations of bitcoin miners around the world, and looking at how cryptocurrencies achieve consensus when validating transactions. They are also following the halving, one of the most fundamental components of bitcoin, to better understand the world’s oldest and most renowned digital currency. 

It’s become an increasingly important field of study because, though once considered a highly risky and esoteric domain of global finance, bitcoin is today becoming mainstream, incorporated into established financial institutions. Some of the biggest hedge funds in the world – more than 300, according to a PriceWaterhouseCoopers report – are now going in heavy. They include such influential business entities as BlackRock and Fidelity Investments. BlackRock CEO Larry Fink said in a report from financial news source Barron’s that bitcoin could “revolutionize” finance, and that he wants to make it cheaper for investors through an exchange-traded fund (ETF).

Johnson Jose Mathew (MBA ’23) is a research assistant at the Schulich School of Business and a marketing specialist at regulated crypto exchange VirgoCX. He is not surprised that the business world is becoming bullish about bitcoin. A main reason, he explains, is that bitcoin has a built-in mechanism to avoid inflation, unlike fiat currencies, which is a major reason why it’s so attractive to investors. A central bank, he explains, could theoretically print money forever, with no cap on the amount entering an economy, leading to hyperinflation. 

Instead, the inventor of bitcoin – an unidentified person or team known as Satoshi Nakamoto – created a fixed cap on the amount of bitcoin in circulation. Only 21 million blocks can ever be created, and every four years that number is downsized by a half to preserve value. “Bitcoin’s inventor deliberately made it with this deflationary kind of curve,” Jose Mathew says.

Henry Kim is co-director of York’s blockchain.lab. He says that a bitcoin halving presents a potential upside for those intent on mining it. “What the miners are banking on, effectively, is that in the long run after the halving, the current prices will eventually double,” Kim says.

Andrea Podhorsky, a York professor of economics, agrees, but points out that plenty of other variables can affect the price of bitcoin, from the implosion of a major player such as crypto exchange FTX, to cryptocurrency regulations imposed by governments. Ultimately, she says, the process of bitcoin halving harmonizes the entire cryptocurrency’s value and the number of miners validating transactions. 

Amirreza Radjou, a second-year master’s student in computer science who is currently working with York’s crypto scholars, compares the effect of halving to the mining of a precious ore, such as gold. If gold could be mined everywhere, by anyone, it simply wouldn’t be valuable because of how commonly it could be found.

The reverse is also true. If gold miners realized the worldwide supply of the ore was far less than they thought, they’d start to worry about where gold would come from in the future. “You would naturally believe that the price of gold per ounce would go up,” Kim says. “That’s the idea.” ■