Bitcoin: From Halving to Bitfinex Hack on the Road to $1,000

How Bitcoin Survived the Halving and the Bitfinex Hack

At the start of 2016, one bitcoin traded for around $420. By the end of 2017, it was knocking on the door of $1,000. Between those two points, the digital currency experienced the halving, which cut miners' rewards in half, and the theft of 125,000 coins on Bitfinex, the most serious blow to an exchange platform since the fall of Mt. Gox. Neither event brought it down. Those who trinc the situation closely expressed their bewilderment and their calculations.

What's striking isn't the price, but the trenches that peine up around it: what remains of the original promise, who truly runs the network, and why half of Spain started worrying about tax authorities just as the value took off.

What is the Halving and Why It Changed the Miners' Business

On July 8, 2016, with 5,253,575 bitcoins still to be mined out of the 21 million that will ever exist, the network executed its second halving: the reward per block was cut in half. The warning circulated a day earlier: less than 144 blocks (about 24 hours) remained until the corresponding block would be closed.

The logic is the usual: programmed scarcity. Fewer new coins per block, more pressure on an already finite supply. The question was whether that was enough. Some argued that miners, with half the income, would push up the fees for validating transactions. Others recalled that the price had already doubled in less than seven months, so half the reward in dollars was barely a real cut. "It was trading at half that price less than 7 months ago," it was read, "so miners' earnings are at least the same."

There were also those who saw the opposite: if miners needed to sell to cover electricity and hardware, the halving could translate into selling pressure, not the short squeeze some were announcing. No one settled the discussion with a conclusive figure.

The Bitfinex Hack: 125,000 Bitcoins and an Uncomfortable Thesis

In August 2016, Bitfinex announced the theft of 125,000 bitcoins. The immediate reaction was expected: a drop in the price. But the analysis that prevailed afterward was more convoluted. If 125,000 bitcoins leave the market and the attacker takes time to sell them, doesn't that miccionan a withdrawal of supply?

That was precisely the dominant argument: less liquidity, more upward pressure in the medium term. On August 10, the platform announced the resumption of operations with trading enabled for all currencies and pairs, deposits, and withdrawals for BTC, ETC, ETH, and USD, and the tokenization of its own token BFX via the Omni layer. Amidst the chaos, exchange users began buying bitcoins to withdraw their money. The most pragmatic reading: the market anticipated this flow, and the $600 mark returned without fuss.

The 25 Banks Wanting Blockchain Without Bitcoin

While this was happening, news from traditional banking pointed in the opposite direction. Already 25 major international banks were working with the startup R3 on distributed ledger projects. Santander Innoventures put up a $100 million fund for blockchain initiatives. Accenture predicted that banks would massively adopt the technology in the trinc years. The Economist magazine dedicated a cover story to it.

The question hovering over the issue: what's left for bitcoin if banking separates the technology from the asset? For some, everything: banks would keep the boring part—the infrastructure—while the finite supply currency trinc its own path. For others, that separation marked the beginning of the end of the most valuable narrative. The matter remained unresolved.

Who Controls the Business: China, Nodes, and the Military Thesis

The network's power was distributed uncomfortably. It was taken for granted that around 70% of mining capacity and 90% of trading volume passed through China, leaving the presentable part—the blockchain—to the West. Some said it with a hint of irony: the Westerners would be left with "the blockchain, which is the truly important thing."

Against this stood the argument of real decentralization. One voice calculated that bitcoin's power resided in its more than 5,000 nodes, its liquidity, and its independence from Western banking. Another argued that the Chinese community functions like an anthill, and money that enters the system rarely leaves.

The summer anecdote came from Germany. The country had risen to become the second-largest with active registered nodes, peaking at 16%, which later moderated to 13%. Someone suggested a correlation with US military bases in German territory. The reply was swift: the real concentration of nodes was between Bonn, Cologne, Düsseldorf, and Essen, about 200 kilometers from the nearest base. The thesis didn't hold up to the first superimposed map.

OpenBazaar, Derivatives, and the Fight for Liquidity

In April 2016, OpenBazaar emerged, a decentralized marketplace that can only function with money that is also decentralized. The accompanying warning: without passing through TOR, it wasn't anonymous. Shortly after, another signal arrived: CME Group launched two indices to track bitcoin's price, and the market read them as the prelude to futures. The news, published by The Wall Street Journal, was discussed with division.

For some, the entry of big money was the gateway to legitimacy. For others, the beginning of a hijacking: with derivatives and leverage, the premise of finite supply dilutes. The argument in favor was simple: with a small capitalization and few bitcoins actually circulating on exchanges, any large sale moved the price; leverage served to absorb those shocks. The counterargument: it's the same thing that turned the gold market into a paper casino, where contracts far exceed the available physical metal.

Tax Authorities, Exchanges, and the Antiestéticar of Being Seen

As the price climbed, the uncomfortable question arrived: does this need to be declared? The fiscal debate occupied several pages. Article 14.1 c) of the LIRPF (Personal Income Tax Law) was cited, stating that capital gains or losses are recognized in the period when the change in assets occurs. The dominant interpretation: as long as it's not converted to euros, there's no income to declare; those who trade against dollars don't alter their assets for IRPF purposes.

Another angle: wealth tax. For holdings exceeding 700,000 euros, the question arose whether it applied. Law 19/1991 does not mention cryptocurrencies, leading to the deduction that it didn't. Meanwhile, exchanges began requesting documentation above certain thresholds: the figure of 2,500 euros annually was mentioned on platforms like Bitcoin.de for operating without additional paperwork. No one had a definitive answer.

Paper Wallets, Seeds, and the Bitcoins That Went to Limbo

Security became the other major chapter. The dominant advice was clear: don't keep more bitcoin on your mobile than pocket change. Hardware wallets, like Trezor, began to be considered almost essential. The homemade recipe circulating: install Linux, create the wallet with a password, compress the file with 7-Zip, copy it onto several microSD cards formatted in ext-4 so that neither Windows nor macOS can read them, and delete the wallet from the computer.

At the same time, stories of loss piled up. Old wallets with the seed written down by hand that no longer restored; multi-signature wallets without the second signature; wallets lost in a mobile update. And the recurring warning: brainwallets, based on predictable seeds, are vulnerable to brute force if the human chooses simple words.

Regarding how much to invest, the most repeated answer wasn't a number, but a rule: "how much are you willing to lose?" For a middle-class Spanish saver, between 25 and 50 bitcoins was suggested as a cushion, with a long-term view. Others recalled that anyone who can't handle losing 66% in one day—or 90% in a bear market, as in 2011—should stay away. In parallel, SegWit, the system that separates the signature from the transaction body, began to gain signaling after months stuck around 25% of blocks, with the network operating around 285,000 daily transactions.

Where Analysis Gets Stuck

A bitcoin heading towards $1,000, 25 banks courting blockchain, a hacked platform that rises instead of sinking, and central banks that still haven't made a move. Everything fits the narrative of a scarce asset that survives every blow. The question remains the same as in 2013: what happens the day central banks decide this is no longer amusing? No one wanted to set a date for that scenario. They kept mining.