The Bitcoin ( BTC ) miners are making record profits despite the crypto winter 2022. Transaction fees have reached their highest level in the past two years.

The revenue of a miner is composed of two parts: the block reward, which is currently 6.25 BTC (about $175,000), and the transaction fees. These fees vary depending on the network demand. Fees have historically, or at least from 2017, been lower than rewards.

In recent days, however, some bitcoin miner are getting paid more for processing transactions than they’re being rewarded for creating a new bitcoin. This is partly because of the Ordinals Protocol.

Ordinals permit the inscription and creation of fungible bitcoin-backed tokens known as BRC-20s. These tokens were used to create memes that saw massive increases in value over the last week.

Tim Rainey said that the Greenidge Generation Holdings’ (GREE) treasurer Tim Rainey stated that the transaction fees for bitcoin on Tuesday represented 75% of current block rewards, which are currently 6.25 BTC. This is a significant increase from the usual 2% to 5%. He said that the transaction fees on bitcoin represented 75% of the current block reward, currently at 6.25 BTC. This is compared to the usual 2%-5%.

Bitcoin’s price was last around $50,000 in the bull market of 2021, when miners made record-breaking margins. The margins vanished very quickly in 2022 after bitcoin crashed, energy prices soared and capital markets stopped providing funding.

The last two days (Sunday & Monday) were Cipher‘s highest revenue days. Tyler Page, the CEO of the company, told CoinDesk that they mined about 21 bitcoins on Sunday and 24 bitcoins on Monday.

Read more about Pump the BRCs – The Promise and Peril Bitcoin-backed Tokens

This is a welcome respite for an industry which saw major firms such as Core Scientific and ComputeNorth enter bankruptcy proceedings because of a continuing bear market.

Short-term expectations

The unexpected increase in revenue may not last as the users will already be looking for other options to make their purchases due to high transaction fees.

According to TeraWulf’s (WULF’s) Chief Strategist Kerri Langlais, this trend will last for only a few more weeks.

Transactions have increased when using the Lightning Network for transaction processing and stablecoins . According to TheMinerMag’s Head of Research Wolfie Zhou, the increase in profitability doesn’t encourage miners to dust down their old mining computers in order to decongest network.

Read more: Litecoin transactions hit record high as Bitcoin fees surge amid BRC-20 frenzy

Charles Chong is the senior manager of Business Development at Foundry. Foundry operates the world’s largest mining pools, and is owned by CoinDesk parent company Digital Currency Group.

Ethan Vera is the chief operations officer of mining services company Luxor Technologies. He said that even when the hype fades, “a greater base demand will be established on the mempool resulting in higher fees for miners.”

Test your mining pools

As revenue has drastically changed, the sudden surge in fees has also put mining pools to test.

According to TheMinerMag Zhao, in May, transaction fees accounted for between 17%-25%, compared to 1%-3% during the remainder of 2023.

According to Foundry’s Chong, this unexpected change has resulted in pools having to hold more Bitcoin reserves. This means that FPPS (full pay per shares) pools need to have more BTC reserves, as the pool’s luck is amplified by the high fees. If a pool has bad luck during this time, it may incur a greater loss in paying the miners for the fees it didn’t collect.

FFPS pools (the method Foundry USA uses to pay out) share transaction fees with miners based on the estimated average transaction fee over a certain time period. The pool will have to hold more bitcoins in reserve just in case they are unlucky enough to not win enough blocks and generate enough revenue to pay out users, according to Colin Harper, the head of content at Luxor.

Chong said that the technology of pools is also challenged by the congestion and rapid changes within the mempool, as they must “quickly adjust order and maximize the fee reward for the customers” in order to keep up with the fast-paced transactions.

The road ahead

This short-lived phenomenon may have a silver lining. It could be that it provides a glimpse into the future for bitcoin miners. The bitcoin network will stop awarding block rewards around 2140. At this point, miners will earn only transaction fees.

Bill Papanastasiou, analyst at Stifel GMP and author of a research paper, wrote: “While ultimately it’s up to the market as to whether this new application will be sustainable or not. We view this as an important long-term development in the security budget for Bitcoin because block rewards will cease eventually. Miners will then rely solely on transaction fees as compensation.”

The debacle of transaction fees also shows how important miners are to the integrity of the entire network.

Langlais, TeraWulf’s Langlais, stated that “without mining there is no BTC” and that miners would be well compensated in the future with the growth of bitcoin.

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Aoyon Ashraf and Bradley Keoun edited the book.