The Breakdown - The Bitcoin Halving Through History

Episode Date: April 9, 2024

A look at what was happening in Bitcoin at the time of each of the previous halvings, and a discussion of what makes this time different. Today's Show Brought To You By Ledger - 5% to Bitcoin Developers When You Buy https://shop.ledger.com/pages/bitcoin-hardware-wallet Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, April 9th, and today we're talking about the having. Hello, friends. This is an AI version of NLW coming to you from the road to introduce a show about a really fun topic, the Bitcoin halving. In this episode, we're going to look at the halving through history. Let's dive in. Hello, Bitcoin friends, NLW here. The halving is fast approaching, and with that occasion in mind, I thought it would be fun to go back and talk about just how different each of these havings have been, especially in terms of what was going on in the Bitcoin and the wider world around them.

So let's enjoy a historical tour of past halvings. The first having occurred on November 28, 2012, with the block reward being cut from 50 Bitcoin to 25 Bitcoin. At the time, 10 million of the supply had been issued, and Bitcoin's price was around 12. Back then, Mount Gox was the largest exchange in the world. As you can see for the piece behind me, Gox was handling somewhere between 70% or more of Bitcoin's trading. And really, it's hard to describe how insane the process was to acquire Bitcoin at the time. For Mount Gox, it was wiring money to Japan and hoping that it arrived. Locally, it was sending cash in the mail or meeting up with some guy off Craigslist. There were constant problems with draw halts,

major hacks, rumors of price manipulation, the infamous Willy Bot, but of course nothing would compare to what followed. 850,000 Bitcoin stolen. from Mount Gox in February 2014, of course, leading to the longest running flood of all time, which is the Mount Gawks Unlocks, and Mark Carpels was later arrested in Tokyo for embezzlement, a charge of which he was eventually cleared. The main narrative back then around Bitcoin was payments, both legal and illicit. We'll steer clear of the illicit, but this is why Bitcoin is for criminals became such a longstanding catchphrase for politicians.

One of the exciting moments around that time was when in November WordPress started accepting Bitcoin. For a bit of history, you can see here the author of that news on Bitcoinmagson.com none other than Vitalik Buterin. WordPress stated that it was a way to ensure people in countries without access to PayPal or credit cards could access the blogging platform. And at the time, WordPress was the 22nd most access website in the world. There was no BitBoy at that time. Instead, there was DaVinci Jeremy.

DaVinci went on an up-and-coming online video platform called YouTube and begged people to, in his words, just buy $1 worth of Bitcoin. The video description reads, Look, for the price of a lot of ticket, you can hold Bitcoin for 10 years and become a millionaire. It's time you stop living in fear. If it goes to zero, you lose $1, who cares? But if I'm right, I want all of you to thank me. It will not make me happy if you come back to me in 10 years saying, dude, I wish I listened to you back in 2011 or 2013. Jeremy took his own advice and is now a multimillionaire. And while the days of such insane risk reward are long gone, this was for many the feeling of early Bitcoin investing,

a long shot risk backed by a lot of faith. A couple months after the first having, Andreas Antonopoulos gave his first ever talk on Bitcoin at the Bitcoin Conference in San Jose. There were seven people in the audience if you include the cameraman. He began by saying, Bitcoin neutrality means being able to adopt Bitcoin in any culture, any language, any religion, any geography, but also any political or economic system. So Bitcoin neutrality is about making Bitcoin a standard that is independent of your standards or expectations. This isn't a libertarian currency any more than it's a communist currency. It's a neutral currency. Andreas went on to influence millions of Bitcoiners and was undeniably one of the first thought

leaders in the space. When, in 2017, he explained that he had sold his Bitcoin in 2013 to pay his rent, and outpouring of support from the community yielded over 100 Bitcoin and donations over the next three days, worth $2 million at the time. Lastly, the first dedicated Bitcoin mining chip was released. Known as an ASIC, the chip mined Bitcoin 50 times faster than the GP users were being used at the time. That first version was designed by a 23-year-old digital media student living in Brooklyn. Let's move now to the second Bitcoin halving. This one occurred on July 9th, 2016, and it saw the block reward cut from 25 Bitcoin to 12.5 BTC. There was at the time 15.7 million Bitcoin in circulating supply, and the price of one Bitcoin was $660. So what was going on back then?

Well, one exciting milestone was that the Bitcoin network hash rate reached one X a hash per second for the first time. That means one quintillion cryptographic hashes were being generated every second looking for the one which would produce the next block. For comparison, at the moment, Bitcoin miners generate over 530 X a hash per second in mining power. In less-fund history, the second-largest Bitcoin exchange hack hit in August. It drained 130,000 Bitcoin from BitFenex, which was worth around $60 million at the time. Bitcoin plunged by 30% on the news to hit $465. For the rest of the cycle, newcomers are told stories about exchange hacks and urge to use cold storage. There was a milestone in Bitcoin VC funding. For the first time, you saw Bitcoin companies seeking major investment.

Blockstream raised 76 million across two funding rounds to build a Bitcoin side chain, and Balaji Shrinivasa raised $121 million for 21 Inc, which went on to release a small computer designed to build applications on the Bitcoin blockchain and process Bitcoin transactions for e-commerce. The big theme was figuring out how to extend the use case for the Bitcoin blockchain. And of course, along those lines, Vitalik Buterin finally launched the Ethereum main net two years after the ICO. We also had the first inklings of the block size wars.

The Bitcoin block size had been controversial since the early days. A one-emabyte limit was only introduced by consensus in 2013 after a major malfunction. Many of the early Bitcoin industry figures viewed the small block size as a barrier to Bitcoin's scale and advocated for larger blocks which could process more transactions. In February 2016, two dozen of the most prominent members of the then-tiny Bitcoin industry signed what became known as the Hong Kong Agreement. It would see the activation of the segregated witness for Segwit upgrade, which was activated in 2017, and which increased the block size to 4 megabytes and allowed for more complex transaction structure.

2016 also saw the first major Bitcoin fork to introduce large blocks, called Bitcoin-X-T. Of course, the following year would see new, numerous additional forks as the community splintered as a result of disagreements over how much larger the block size should become. Large blockers ended up going their own way, upping the block size to 32 megabytes and beyond, arguing that was the only way to make Bitcoin work as digital cash. Small blocker stuck with the main Bitcoin blockchain with its four megabyte blocks and worked on other scaling solutions. Finally, one of the first serious academic papers in the Bitcoin economy was released in July of 2016 and found that sin payments, as they called them, made up less

than 3% of the transactions on the network. The paper was one of the earliest attempts at blockchain tracing, using network analysis to track the interconnections between Bitcoin users. It's said that the Bitcoin economy, quote, rather than being a fleeting and frivolous pursuit, has grown and matured over the few years that it has been operational, distinct patterns of behavior among its most influential entities and participants. Hello, breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to all the new folks do the same. Ledger is the global platform for securing Bitcoin and other crypto.

Ledger combines both hardware wallets and the Ledger Live app to offer the best way to buy, sell, swap, and stake without sacrificing on security or self-custody. Ledger features cutting-edge technology in the form of a certified secure chip and a proprietary operating system, but also brings ease of use. This makes Ledger a safe and secure way to manage your digital assets without all the stress. Check out the link to the Bitcoin Ledger Nano in the show notes. 5% of all sales of the Bitcoin Ledger Nano go to support Bitcoin development. Thanks once again to Ledger for supporting the breakdown. Many of you probably remember the fourth halving.

It took place on May 11th, 2020, saw the block reward reduced from 12.5 BTC to 6.25 BTC, 18.3 million in supply were circulating, and Bitcoin that day was at 8,700. So what was going on then? Well, one of the most dramatic events was a Bitcoin collapse of 50% of, 50% of, across two days as the global markets were rocked at the beginning of the COVID-19 pandemic. Bitcoin fell below $4,000 on some exchanges in what many consider the most terrifying trading day in Bitcoin history. I was literally recording a podcast with Preston Pish as Bitmex went down at sub-4,000-dollar Bitcoin. Indeed, Bitmex suffered a denial of service attack, which many still

believe was the last-ditch effort to put a bottom on the crash. A couple months later, as the having hit, though, things were looking pretty different. Paul Tudor Jones became the first of the Trad 5 Mavericks to come to the space, releasing his great monetary inflation thesis. The thesis explained how money will be debased due to excessive debt and endless money printing following the pandemic, and Ptj called Bitcoin the fastest horse in the race. He said that we could be witnessing the historic birthing of a store of value and declared a 1% allocation to Bitcoin. This was truly the first time that a credible Wall Street figure had delivered a full-throated case for Bitcoin, and the paper was released the week before the having. The following week, Fed Chair Jerome Powell appeared on 60 Minutes

to convince the American public that he really was printing a lot of money. The NASDAQ had only just recovered from its March drawdown, and sentiment was dismal. Powell said we print money digitally. As a central bank, we have the ability to create money. After years of Money Pritcher-Go-Bur, it's hard to remember how groundbreaking this was. This was the head of the most important central bank in the world, not only admitting that the Fed creates money, but imploring the public to believe him so that asset prices would recover. A few months later, we got the groundbreaking announcement that Microstratology would be buying Bitcoin as a treasury asset. The company had too much cash on hand.

and then CEO Michael Saylor was worried about currency debasement. He famously called cash a melting ice cube. The company acquired $250 million worth of Bitcoin by August, and the rest, as they say, is history. Finally, we saw the beginnings of Then They Fight You, which has come to characterize a lot of our life since. By December, Bitcoin was approaching new all-time highs alongside the all-time highs in government concern. The SEC sued Ripple for the sale of unregistered securities, which was the highest profile crypto enforcement action to date, and ended up costing Ripple over $200 million. to fight over three years. What's more, since 2019, Treasury Secretary Steve Mnuchin had been agitating for tighter crypto regulations. Rumors swirled that President Trump had instructed him to go after Bitcoin,

with these allegations culminating in an unsuccessful attempt to ban self-hosted wallets heading into the final weeks of the Trump presidency. Which brings us to the upcoming halving. The halving is expected to take place sometime in April. It will reduce the block reward from 6.25 Bitcoin to 3.125 Bitcoin. at the time of the halving, there will be around 19.7 million in Bitcoin supply, and if things stay the way they look now, the price will be 60,000 or above. Knock on wood. Already, this year has seen some remarkable changes. Right at the very top of that is, of course, the launch of the Bitcoin Spot ETF, which has brought an entirely new set of energy and buyers to the market. Alongside this, there has been a narrative capitulation with many of the folks who were watching for Bitcoin

and Crypto's final death in the wake of the disasters of 2022, only to be disappointed by Bitcoin utter resilience. If you need evidence of this, just take a look at the op-ed section of the Financial Times, historically a bastion for Bitcoin hatred. They recently ran a piece called Bitcoin Bulls are not the Bigger Fools. The most popular cryptocurrency is starting to look like more than a passing fad. Indeed, it's true, and I'm sure that this year has much more in store for us. Hope that you have enjoyed this trip down having memory lane. I'll see you on the other side in April.