Fractal Bitcoin: A New Frontier or a Threat to Mining Revenues?
August 2024 marked a challenging month for Bitcoin miners, with revenue plunging to $827.56 million, the lowest since September 2023. Enter Fractal Bitcoin — a potential game-changer that could either bolster mining profits or further squeeze them.
Fractal Bitcoin is a sidechain scaling solution that operates using the Bitcoin core code, promising enhanced scalability. It’s merge-mined alongside Bitcoin, meaning miners can potentially boost their revenue without overhauling their equipment. This could be a lifeline for miners struggling in the post-halving era, providing a new revenue stream without the need to invest in costly AI or high-performance computing hardware.
Yet, the impact of Fractal Bitcoin isn’t all sunshine and rainbows. Its support for the BRC-20 token standard and its role as a faster, cheaper scaling solution could lead to decreased network fees on the Bitcoin base layer. This reduction in fees from non-fungible tokens and other tokenized assets might translate to lower profits for miners who rely on these fees for their income.
Tokenized assets have been a boon for Bitcoin miners. The enthusiasm around Bitcoin Runes, ordinals, and BRC-20 tokens initially led to significant network fees — 1,200 BTC in just one month after the April 2024 halving. Even though this frenzy has cooled, these assets continue to provide a substantial revenue source, contributing approximately $162.4 million in fees to date.
A similar trend was observed with Ethereum, where layer-1 revenue collapsed following the Dencun upgrade in March 2024. The upgrade reduced fees for layer-2 transactions, sparking an explosion in layer-2 networks and driving a 99% drop in Ethereum’s base layer fees. If Fractal Bitcoin proves successful, we might witness a parallel scenario on the Bitcoin network, with a potential decrease in base layer fees and increased competition among scaling solutions.
In summary, Fractal Bitcoin presents a double-edged sword for Bitcoin miners. While it offers an opportunity to diversify revenue streams, it also poses the risk of reducing overall network fees. The evolving landscape of Bitcoin and its scaling solutions will determine whether Fractal Bitcoin will be a boon or a bane for mining revenues in the coming months.
