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In an interview with crypto.news, Andy Fajar Hardika, CEO of Loka Mining, discussed the evolution of decentralized finance (defi) on the bitcoin network.
On April 19, 2024, bitcoin mining rewards were halved. Mining a block will now generate only 3.125 btc, compared to 6.25 btc previously. Although the bitcoin halving occurs approximately every four years this year, it really has industry participants talking about how the reduced rewards will affect the mining economy.
With each halving, mining companies have to adapt to a bitcoin-halving-will-deal-a-10-billion-blow-to-crypto-miners” target=”_blank” rel=””>lower margin atmosphere. Companies with liquidity problems often exit the market or merge with larger companies. Unlike previous halving events in 2016 and 2020, the 2024 halving event may result in a series of consolidations and defaults.
Enter Runes and Ordinals, concepts that are revolutionizing the defi landscape on the bitcoin network.
Runes, like ethereum's ERC-20 standard, introduce fungible tokens to the bitcoin blockchain, while Ordinals bring nfts directly to the network. As a leading cryptocurrency, this goes a long way to expanding the possibilities of what bitcoin can offer beyond simple transactions.
With Runes and Ordinals, bitcoin is finding new ways to close the gap with ethereum, which has largely been hailed as the king of Defi. However, nothing is without challenges. Blockchain scalability issues and inflation concerns loom large, echoing past impediments in the industry.
Still, the birth of protocols like Runes and Ordinals show that bitcoin can support more diverse decentralized applications. Miners, in return, can offset the effect of the halving in revenue.
Hardika, who runs a cryptocurrency mining company, shared her thoughts on the matter.
How do you see bitcoin's role evolving in the defi space, given its recent advancements like the Runes protocol and the impact it has had on miner revenues and transaction fees?
bitcoin lacks programmability, but has the strongest Lindy effect and has proven to become the de facto store of value. Personally, I believe these features are driving bitcoin to be the “mother chain”, attracting new protocols that are flourishing on the L2 or bitcoin sidechain.
In your opinion, can bitcoin position itself as a competitor to ethereum in decentralized finance, or do you foresee a different outcome?
I think what we will see in the end is not rivalry, but rather collaboration, where chains will be “merged” and abstracted to the point that regular users don't really care or need to understand which chain they are currently using.
With Runes raising transaction fees to new heights, how do you think bitcoin can balance rewarding miners with keeping transactions affordable and accessible? Are high fees hindering bitcoin adoption for smaller transactions?
As bitcoin moved from a P2P electronic cash system to a store of value, I think the high transaction fee on bitcoin L1 is important. It serves as compensation for the security budget that the network needs to maintain. This is where L2s are involved in scaling the network and adding programmability to bitcoin. From a user perspective, solutions like Lightning or ICP with their ckBTC make it possible to reduce bitcoin transaction fees to just a few cents.
bitcoin has historically lagged behind ethereum in defi applications. What are the chances that innovations like Runes and Ordinals will help bitcoin close this gap? What are the advantages or challenges of bitcoin in this space?
Ordinals are basically fully on-chain nfts, parallel to ERC721, while Runes are essentially fungible tokens on bitcoin, parallel to ERC-20. These are just the first pillars of bitcoin programmability. While it is now possible to create a primitive L1 dApp, it is still very limited. I think the real use case would be as anchor points for L2s to provide a full defi application on bitcoin. A significant advantage would be that we can unlock the huge bitcoin TVL that is currently sitting in the wallets of its holders.
Some critics argue that protocols like Runes and Ordinals could lead to blockchain growth and slower transaction times. What do you think about these drawbacks and how do they compare to ethereum's scalability challenges?
History tends to repeat itself. A few years ago, we had CryptoKitties, the first gamified nft on the ethereum network, which consumed 13% of all transactions on the ethereum network. This ignited discussion about network scalability and eventually led to many upgrades and the increase of L2s on ethereum.
Do you expect a similar trend?
I think we see parallels between Runes and Ordinals, which are now taking up significant block space and contributing a significant amount to the network security budget. As an indirect result, there are now over 50 bitcoin layers or sidechains attempting to solve bitcoin scalability. And of course, like startups, most of them will eventually disappear or go dormant, but those with great utility and real use cases will survive.
