During an interview with crypto.news, Andy Fajar Hardika, the CEO of Loka Mining, delved into the changes occurring in decentralized finance (defi) on the Bitcoin network.
On April 19, 2024, Bitcoin mining rewards were halved, reducing the reward for mining a block from 6.25 BTC to 3.125 BTC. This reduction, which occurs roughly every four years, has sparked discussions within the industry about the impact it will have on the mining economy.
Each halving event forces mining companies to adjust to a less profitable environment. Struggling firms often leave the market or merge with larger entities. Unlike previous halving events in 2016 and 2020, the 2024 halving event may lead to increased consolidation and defaults.
This is where innovative concepts like Runes and Ordinals come in, reshaping the defi landscape on the Bitcoin network. Runes, similar to Ethereum’s ERC-20 standard, introduce fungible tokens to the Bitcoin blockchain, while Ordinals bring NFTs directly onto the network. This expansion of possibilities showcases Bitcoin’s potential beyond simple transactions.
With the introduction of Runes and Ordinals, Bitcoin is bridging the gap with Ethereum, which has been considered the leader in defi. However, challenges such as scalability issues and blockchain bloat remain, reminiscent of past obstacles in the industry.
Despite the challenges, the emergence of protocols like Runes and Ordinals demonstrates Bitcoin’s ability to support a wider range of decentralized applications. Miners, in turn, can mitigate the impact of the halving on their revenue.
Hardika, leading a cryptocurrency mining company, offered his perspective on the developments.
Considering Bitcoin’s recent advancements like the Runes protocol, how do you view its evolving role in the defi space and its impact on miner revenues and transaction fees?
Bitcoin may lack programmability, but its strong Lindy effect and established store of value status make it a key player in the industry. This positions Bitcoin as the “mother chain,” attracting new protocols that are flourishing on Bitcoin’s L2 or sidechain.
In your opinion, can Bitcoin become a competitor to Ethereum in decentralized finance, or do you anticipate a different outcome?
I foresee a future of collaboration between chains rather than competition. Chains will likely merge and abstract to a level where users won’t need to differentiate between them.
With Runes driving transaction fees higher, how can Bitcoin balance rewarding miners while keeping transactions affordable? Are high fees hindering Bitcoin’s adoption for smaller transactions?
As Bitcoin transitions to a Store of Value, the high transaction fees on Bitcoin L1 are crucial for network security. This balancing act is where L2 solutions come in, reducing fees for users with alternatives like Lightning or ICP.
Historically, Bitcoin has lagged behind Ethereum in defi applications. How likely is it that innovations like Runes and Ordinals will help Bitcoin close this gap? What challenges and advantages does Bitcoin face in this arena?
Ordinals and Runes lay the groundwork for Bitcoin’s programmability, enabling the development of L1 dApps. This paves the way for L2 solutions to create comprehensive defi apps on Bitcoin, unlocking the vast TVL currently held in Bitcoin wallets.
Critics fear that protocols like Runes and Ordinals could lead to blockchain bloat and slower transaction times. What are your thoughts on these concerns, and how do they compare to Ethereum’s scalability issues?
Similar to CryptoKitties on Ethereum, Runes and Ordinals are consuming significant block space on the Bitcoin network. This has prompted the development of over 50 Bitcoin Layers or sidechains to enhance scalability. While some may fade away, those with strong utility and real-world applications will endure.