Binance Investigates the Upcoming Litecoin Halving

Binance’s research division examines implications for miners ahead of the upcoming 2019 Litecoin halving.

Key Takeaways:

  • Transaction fees are an insignificant part of Litecoin miners revenue significantly exposing miners to block reductions
  • Mining profitability did not decline after the first Litecoin halving with the price rising to compensate
  • A permanent reduction in miner profitability is a possibility for this halving

The research division at cryptocurrency exchange Binance has published a study exploring the implications for Litecoin miners ahead of the upcoming Litecoin block reward halving. The Litecoin block reward halving will take place at block 1,680,000 which is estimated to occur on the 6th of August 2019.

There was only one prior halving in the Litecoin network which reduced the block reward from 50 to 25 in 2015. The upcoming halving will reduce the block reward from 25 litecoin to 12.5.

Mining rewards are made up of transaction fees and block rewards. With the transaction fees representing an insignificant fraction of total rewards, Litecoin miners will likely have strong concerns regarding how their profitability will be impacted after the block rewards are halved.

Binance’s research presents several potential scenarios which could play out in relation to the upcoming halving. The study examines implications on price, mining profitability, hash rate, and risks to the network.

The 2015 Litecoin Halving

The last and only prior halving on the Litecoin network took place on the 26th of August 2015. The study explored the increase in price and volatility in the three months leading up to the halving.

Price (USD)

The price doubled from $1.5 to $3 with an increase to $7 in mid-July. The implications for mining profitability resulted in miners earning approximately the same after the halving as three months prior.

Despite the reduction in block rewards received by miners post-halving, the increase in price effectively compensated the miners for the block reward reduction. This highlights an important reality of the mining business model.

Price is the most important variable when it comes to mining profitability. Binance found further evidence supporting this reality in prior research exploring a fork in the Monero network to maintain ASIC resistance.

Hash Rate in TH/s

While some expected the decreased rewards to result in miners dropping out of the network or transitioning to other PoW cryptocurrencies, the hash rate was little impacted in the past halving. There was a drop of 15% in the hash rate post halving but this quickly recovered.

However, a significant drop in hash remains a possibility with the upcoming halving. Such an event would result in increased exposure to a 51% attack taking place on the Litecoin network.

The 2019 Litecoin Halving

Much uncertainty surrounds halving events and Binance prudently notes that there is not enough past evidence to make any strong assumptions about what will happen in future halvings. Whether the block reward reduction will decrease miner profitability comes down to whether miners can be compensated by increasing price or transaction fees as Binance summarizes:

“Only an exogenous rally in Litecoin’s price (i.e., outperforming all other PoW cryptocurrencies) or increasing usage of the chain itself – resulting in higher total transaction fees collected by miners per block – could compensate for this future decrease in mining block rewards”

Binance presents four non-mutually exclusive scenarios which could play out for the halving:

  • Increased price in the months leading up to the halving as was the case with the prior halving.
  • Increased hash rate prior to the halving as miners move more computing power to the network before the reward reduction takes place.
  • Reduced competition among miners post-halving as miners transition to other PoW cryptocurrencies.
  • Profitability decreases permanently for miners.

One prior halving is certainly not enough to ensure that miners will be compensated by price rises in future halvings, and in the case that miner profitability is permanently reduced Binance rightly says “it is impossible to predict how miners would react”.