Bitcoin Forum

Bitcoin block reward drops to 25BTC.

Most people appear to be mining/trading Bitcoin purely for profit.

Most of the hashrate is lost due to GPU miners becoming unprofitable as the price does not double, but only increases 25% or so.

Only FPGA miners and hobbyists securing the network.

This makes the 51% attack much more probable.

51% attack takes place and much trust is lost in Bitcoin.

The end?

SELL, SELL, SELL!

Into my short. :P

Someone who has 51% or anywhere close to it will be making a lot of money, I have a hard time believing that someone would go to all that trouble, money, and time just to attack and kill the chain. More likely they would hide the fact that they even have that much to keep confidence from dropping. Just look at the recent mystery miner, had 15-20% of the hashing power, but the only reason anyone even knew about it was because of the 1tx blocks he was producing.

I don't think there's any question that if the price does not double immediately after the reward drop, lots of miners are going to drop out.  Whether somebody maliciously takes advantage of that, there's no way to know.  With only more efficient miners left over, assuming the price doesn't jump up enough, then I suspect the price will continue downward as the more efficient miners can tolerate lower prices and remain profitable.

I think there's a good chance this scenario happens as people will probably price an increase in well before the reward change in anticipation of a possible price increase, thus there won't be a subsequent and sufficient price increase after the change.

Why should people feel the need to pay twice as much just because miners aren't earning as much? Halving the block reward doesn't make bitcoin twice as valuable, and nobody owes you free money for mining.
Block reward halves, miners mining at a loss stop mining, difficulty drops. Simple.

It's impossible to know how the block reward drop will affect everything exactly but talking about "failing" is absolute FUD. Most likely the effect will be relatively small, in fact I would bet a lot of money that it will be relatively small. Any smart miner knows that Bitcoin price will rise significantly because of the reward drop (it rises because halving of the money supply inflation will raise confidence in Bitcoin's ability to retain value, thus it will lead to more buying). I'm not claiming that it will double but it will certainly compensate.

I don't think this is priced in yet but I would say that it will be priced in months before the reward drop actually happens. So this is also something that smart miners will take into account. Regardless, I'd say that the effect to network hashrate after the drop will be small. Miners will be taking everything into account way before the drop, when they consider investing in FPGA etc. So it's ridiculous to think that right after the drop there would be any significant effect. Most likely hash rate will adjust months before it happens, depending on the price at the time of course.

Um, yeah, that's what I said.

And it's good more people are saying it since not everyone seems to get it..

This talk of FUD is such bullshit. Explain why it won't happen asshat. Don't just call it FUD. That is just so weak!


Anyone who knows any economics realizes that there is no reason to expect more than a minuscule price increase (say 1-3% per annnum) from the drop in block reward. Adding a healthy serving of ass to your reply does not lend you credibility.

(addressing the audience) You should take these kinds of bullshit arguments as a tacit admission of extreme weakness.

Give me a break, the explaining part is not my responsibility. It's not up to me to explain why Bitcoin won't fail, because such claims are absolutely ridiculous, it's up to those who make those ridiculous claims to explain why it would fail. None of the explanations so far have any significance.

A 51% attack is not going to get much easier with the next reward drop, in fact it's very likely that our network is significantly stronger in absolute terms at the start of our 25 BTC era. In relative terms it will get weaker over time but it is not a relevant issue right now. I will explain it more if there are better arguments forthcoming, which I doubt.

Regarding the reward drop, Bitcoin's annual money supply inflation will change radically thanks to this change (for the better) and expecting only a 1-3% price increase is beyond idiotic. It will be difficult to ascertain how much of it will be priced in and how early, and how much it increases simply because of this, but talking about 1-3% makes me confident that you don't know what you're talking about.

This change is a massive confidence shift in the way Bitcoin traders and investors look at the currency. Even now in the face of major money supply inflation we have been very stable at close to $5. 1-3%, you have to be kidding me. This year Bitcoin has 33,3% annual increase in money supply. Next year we will have a 12,5% increase in money supply. This is a massive change. The effects of this, mainly on market sentiment, should not be underestimated.

We've been over this, and over this before. Miners *may* start to drop out before we get there, and difficulty will drop such that mining will continue to be profitable for the more efficient miners which remain. The few who push it to the last minute (unprofitably) will taper off just like we saw after the bubble burst and difficulty was almost 2mil. Then when difficulty catches up to price, people will flock back like we see currently.

We're talking about 8 months away. In that time, many new miners may move in. Existing minors will decide if FPGA is the route for them, and some will continue to mine at a loss in anticipation of high prices eventually. The cost/MHs of FPGA *should* be more in line with each other, and who knows? There may be a new tech out by then, possibly even affordable ASIC, and Amazon ECS. Only time will tell.

I suspect that miners sell Bitcoin for close to their cost because most of them are good geeks, but poor businessmen. I don't know of any other business where people sell their goods for barely over cost, except maybe farmers before they go out of business. When the block reward is cut in half, they will be forced to double their prices or go out of business. If miners are still undercutting each other by then, I will continue to buy Bitcoin at the going rate.

Why do you think this? Why would they do that?

Why mine at a loss when you can just purchase bitcoins with the money you would have spent on electricity?

Alright! I fixed it myself since it was more of a speculation on my part.
To answer your question: In anticipation, difficulty, price action (or possible lack thereof), general boredom.

I'm not saying I would quit before the drop, as opposed to after, but some will.


Because people have already proven that they are willing to mine at a loss as seen back in October.

Because people have already proven that they are willing to mine at a loss as seen back in October.
[/quote]
Please refer me to the relevant posts and/or give me a valid reason for actually doing it.

Convenience?

Were you around in September-October?
I don't know of a relevant post specifically no, but people proved that they were willing to do it. Other than FPGA, can you mine a coin for $2.00? I recall most people saying their break-even price was around $3, so they were mining at a loss.

Edit:
And for a valid reason for actually doing it? Speculation.

Let's have a look at a couple of different strategies to see what might happen:
Mining Strategy 1) Avoid speculating. Simply mine and sell coins continuously. Given that the mining difficulty lags behind the mining "effort", halving of the reward rate is basically a doubling of costs. These miners would simply be forced to withhold their coins until they get bids that they're happy with. If they control a sufficiently large share of the total Bitcoin supply, this would force the price up by pushing the "ask wall" to the right and any serious bidder will simply have to cough up more if they want to get Bitcoins.

Mining Strategy 2) Greed. Mine coins and hold onto them in anticipation of higher prices in the future, and only sell when there is a very good opportunity. These guys are more likely to be stacking months in advance, hoping for a large price increase. However, a sudden flooding of the market with cheap coins could prevent a price increase from occurring in the first place. Anticipating this, some may be thinking about taking profits early, "before the rush". The problem: if the miners are all equally greedy, how do they prevent a herd mentality from foiling their plan?

Mining Strategy 3) Speculation. Similar to strategy 2, but the intention is to bankrupt the non-speculators, thus gaining a larger share of future mining rewards. This one is very risky because there are lots of unknowns: assumptions that there are some non-speculating miners, and assumptions that one's own position is sufficiently strong not to get forced out of the market by an even stronger player who might keep the price low even longer.

Ironically, it seems the "dumb" miners (strategy 1) are the only ones actually making any regular returns, the greedy ones get frustrated, while the speculators end up subsidizing the Bitcoin economy and risk going bankrupt! :D In reality, the mining ecosystem probably has an eclectic mix of lots of different strategies (e.g.: mining and actually purchasing stuff with Bitcoin) so I agree that the actual effect of the reward halving will be unpredictable. My prediction is that there will be a spike in volatility that mostly lags behind the 50 to 25 coin reward change.

But how? What will they do?

15 to 20 percent? Nice, drive out at least 60% of the other miner's capacity and there's your 50%. I don't at all doubt that Mystery Miner is in a position to greatly increase its capacity if the mood suits, so the drop out rate could be even lower than 60% and the blockchain could be theirs.

I keep seeing a claim that the Halving of the Bitcoin will cause it to double in value, but it's not clear to me why this would be. Any insights would be appreciated.

If overall BTC supply is not heavily represented by miners then there's no reason to think that the BTC/USD rates will go up when the mining reward halves.

On the other hand, if supply is impeded by profit miners creating walls.  Miners would have to represent enough of the supply.  I just don't see that.

I don't think the price needs to necessarily double. If the average break-even price right now is around $3, the reward halving would kick it up to $6. So, as long as the price gets above, and stays above $6, it'll be similar to what we have been seeing since November.

it is FUD because you've given meager to no explanation in the OP about why you possibly think this specific horror scenario should play out. "explain why it WON'T happen, asshat" are words which come out of the mouth of someone trying to avoid the burden of proof. you made the claim, the onus is on you. BTC is trading at $5 a piece right now, so "BITCOIN WILL FAIL" claims are indeed positive claims, not the opposite.

do you have any evidence at all to believe what you wrote in the OP?

Careful, he'll call you an asshat....

I think this claim originates from a simplistic analysis that assumes miners are selling all new coins immediately.

On that basis, 7200 new coins are coming onto the market every day. If the price remains stable around $5, there must also be $36000 of new additional coming into the Bitcoin exchanges each day (equal to 7200 x $5).

If the supply of new coins drops to 3600 per day, but the influx of new money stays at $36000 per day, the market price will rise to $10.

Obviously there are many factors that are not considered in that naiive analysis, so it's not of much use.

10TH/s isn't significantly harder to destroy than 5TH/s.

Yeah it is 2x but 2x isn't much of a multiple.  For example lets say Chase Bank decided to destroy Bitcoin.  Granted very implausible but lets say they decided.   At ~$1M per TH/s to 51% the network at 10TH/s requires $10M and @ 5TH/s requires $5M.  Now yes simplisticly $10M is larger than $5M but any entity willing AND able to devote $5M to the destruction of Bitcoin could just as easily devote $10M.  If Chase bank could devote $5M to the destruction of Bitcoin they could just as easily devote $10M.  If $5M is worth it then $10M is also likely worth it.

The reality is given the tiny economic value of the network even $1M probably isn't worth it.

Now $200M or $5B that is a different story.    Those change the dynamics.  $200M is harder to hide from shareholders and harder to justify as an expenditure.  $5B puts Bitcoin out of the reach of most non-governmental entities.

In terms of "non-economic" (attacker isn't looking to directly profit from the double spends) 51% attack protection: 10TH/s ~= 5TH/s

Worst case scenario (for hashing power) is reward is cut in half and price doesn't rise at all.  If hashrate falls by half the remaining miners will be just as profitable as now.  That puts a floor at ~5TH/s which isn't materially different than 5TH/s.  It would take a drop of something like 95% or a rise of something like 5000% to materially change the strength of the network.

Persistence of the status quo when a major change occurs should be assumed and does not need to be supported by argument. Nice, please continue. I've discovered that the best method of discrediting you comes from just getting you to respond. The revealed idiocy is so extreme that any thinking person necessarily perceives it.

Arguing with you is not a good strategy. The audience here is not sufficiently intelligent to follow a logical argument. It is like speaking in a foreign language. Or like US politics. Logical arguments are simply ignored and have no impact (watch I'll try in the next post). It is easier and more effective to goad one's opponent into writing something blatantly foolish.

Honestly why do you talk like this? What is the purpose of these posts I keep seeing where you just insult people and provide 0 useful or interesting info?

Good. Then you should stop. 
At the top of the page click "Logout".

this:


and this:


also,

While "persistence of the status quo when a major change occurs should be assumed and does not need to be supported by argument," may not be true, that your specific scenario should play out is still a positive claim. Are you completely unfamiliar with the concept of burden of proof? Are you some kind of creationist or something?

also, we should all probably just put cunicula on ignore because all we're doing is bumping this FUDlicious thread.

The thing is, difficulty lags behind the hash rate (correct me if I'm wrong). So at the very least it will introduce a jolt where new coins suddenly more expensive to produce, without a corresponding decrease in difficulty. That "while" might be a few days, or it might be several months. If one has a look at historical difficulty charts, to me it looks like the difficulty is still oscillating from last year's bubble.

No, he is just an arrogant person who thinks he is so much smarter than anyone else on this forum. He believes he is an economic hot shot. But even if he was, this way of ridiculing other people's opinions shows he just gets the laughs in winding people up. It's all over the forum. He even wanted to be paid to answer questions. Too bad claiming you know it better won't just do it in forums. If you don't want to educate others without being paid for it you shouldn't be on such a forum. You should keep your precious knowledge and sell it to rich college kids only. Only they deserve to deal with you. Since you won't pay any respect to others, why should they listen to you? One more thing, do you think it's funny calling people names?

Quite frankly, why isn't the moderator banning people who violate network etiquette so blatantly? Oh, yes yes - this post is a violation of your intelligence. I get it, blah.

I am not saying difficulty (hashing power) and price won't oscillate.  They certainly will.  I also think volatility (both in terms of hashing power and price) are likely to increase as we move through this "event".  I am just saying even a change from 10TH/s to 5TH/s doesn't materially change the strength of Bitcoin. 

DAT, I know you're more than a little bit familiar with the economics of mining.  What do you think the distribution of miners and their profits are like?  What I'm getting at is do you think that half of the miners are currently mining below 50% of the current miner marginal revenue (giving a 50% profit) or somewhere else?  Where do you think the average mining profit sits w/r/t mining revenue?

FWIW I saw people in the mining subforum attributing the current decrease in hashrate to slowing down/shutting off miners for the higher summer electricity cost.  If someone could get a good guess at the average electricity rate change from winter -> summer it could be used to get a very rough estimate of the elasticity of miners.

I anticipate that we'll get a pile of press around the block halving time, and that it will be good press.

It will remind the world that Bitcoin has been around for FOUR years, and that the supply is about to be permanently cut in half.

I would gladly pay for some of his sage wisdom. Unfortunately, I'm kinda broke at the moment -- all my funds are tied up in a business venture, and in order to access them, he would need to send me a donation of sorts (see address below  ;) ) to cover the administrative costs of unwinding part of that venture prematurely.


Fair enough. When it comes to leading vs lagging indicators, do you see any overt mechanism/cause for increased volatility leading up to the changeover? The only obvious thing I can see is the psychological uncertainty!

Ditto

And they restart mining the next week when they realise the difficulty has dropped enough to make it profitable again? There are a few "what is the meaning of Value? 101" threads around the place.

Cutting a very long story short:
Bitcoin value for miners ~= Cost + small personal reward.
Bitcoin value for everyone else ~= 1001 conveniences + psychological factors.
In other words, price is very elastic.

So if miners cut the supply, the users will go all ape-shit and pay more ;)

Fear based thinking is characteristic of much of what I see pass for discourse on this forum. That's one reason why FUD is such an appealing concept to scared little sheep.

Seriously kiddies, your life is as likely to be a fucked up disappointment that you will regret every day as it is to be anything else, and no matter that, you are likely to die painfully in complete hopelessness and slide down that long gray tunnel into forever darkness without ever knowing why. Oh, and you can't take it with you, even if it is a deflationary currency  ;)

So buck up, you sound like a bunch of little girls. Coach Satani signing out  :)

Jolly good to see that you're raising the standards by contributing to the substance of the debates instead of whinging! ;D

FTFY

Well then he needs to take a number like the rest, he has plenty of company here, it's rather like a support group without any trained guidance or oversight  ;)

Bitcoins are completely durable. A fully anticipated decrease in supply of a durable good cannot cause price to increase any faster than the real interest rate (1-3% per annum) + a risk premium for holding bitcoin. If not, then speculators would want to invest in the durable good now, store it, and sell it at a profit after the supply drop. Competition among speculators drives the expected price increase down to the real interest rate + risk premium. Any price effect due to falling block reward is already loaded into the current market price.

If the supply decrease was unanticipated or bitcoins were not durable, then this would be a different story.

EDIT: include risk premium

I agree. My OP was definitely FUD. But I'm not trying to trick anyone. I just wanted other people's opinions and theories.

All anyone ever does in this Speculation sub-forum is shout "FUD FUD FUD!"... It's why I usually don't bother reading it.

It's not this simple, for one simple reason. Bitcoin market is so volatile for a large number of reasons that you can't look at this in a vacuum. If speculator x thinks the price might go down in the near future for a reason not related to this, he is not going to be buying now. I don't believe that this particular event is well priced in at this point. It will become priced in once this event is a bigger issue in people's minds. Right now it's still far away, so far in Bitcoin time that for all we know we might have a super bubble and a bust before it even happens.

To hammer my point in clearer, it's easy to anticipate a resulting price increase because of the reward drop. But from where? From where it was before. Here is the problem, we don't really know if a price of $5 is high or low. Maybe we're at $3 in August, good luck for those who priced in the price increase now. Bitcoin is so full of questions that it would be sort of super bullish to price in the reward drop price increase at this point because it's not certain we're even this high in the months before the drop.

So I'd say that people buying now are buying for a wide variety of reasons, this one in particular having little effect. In the months before the event, many will be buying solely for this reason. That is the difference. It does add to the overall bullishness of already bullish market players but closer to the event this alone will cause significant rallies because people expect that. It's a self-fulfilling prophecy, just like everything else in an environment like this.

Well it is a child forum. :D

Congrats to cunicula for providing a serious reply. However, I'm not sure if his analysis is fully valid in this case. The supply can't be anticipated -- a large speculator could already be holding a large number of Bitcoins and refuse to tell anyone when (if ever) she'll sell them. His earlier point (about inertia) has merit because there could be lots of those speculators, and since each could be similarly unpredictable, the supply is likely to get averaged out anyway. Nonetheless, there is a difference between anticipating the creation of coins, versus anticipating the availability of said coins.

I am looking forward to buying a bunch of mining equipment at firesale prices after the reward drops.

How about this:

Difficulty will rise from new technology (tons of gamers with new gpus, plus fpgas) and panic not to get left behind, some people mining at a loss regardless.
Prices drop because of hoarded coins from the early years being dumped on the market. (They hold out this long, "now or never")

I'm not saying this will happen, but just to remind you guys that tons of scenarios are possible. Don't freakin act like you have the magic crystal ball.

As an 8 month+ miner I have to decide whether I finance that ASIC / FPGA rig with earned Bitcoin or pour in new money.

Summer is awfully unbearable within say 10 feet of 10 GPUs.  Maintenance, cooling, and space constrain are adding up making it an unprofitable waste of time beyond 2-4 (GPU) aka. single gaming rig.

Any moderately tech savvy investor (50k$ & more) looking to get into BTC will choose ASIC/FPGA boxes and will buy a few cheap BTC. (before the halving)

Overall the network will only be stronger and will be able to tolerate temporary drop to even 50c per BTC
I applaud BFL, LargeCoin and the likes for making this possible.

with those tiny FPGA rigs, there will be a shitload of people mining for free at their work

it should keep the price low

I lold!   :D

^Word.

Hopefully the supply of FPGA rigs will increase with demand...  :-\ to keep price of the rigs affordable...

Don't discount the composition of that hashing power though.  Individuals mining today on their gaming rigs are getting squeezed out by difficulty increases versus a stable exchange rate.  They aren't going to be buying FPGAs so the operators of these larger GPU farm ops and 25 ghash/s mini-rigs will representing a greater and greater share of the hashing.


That's the key point.  Currently, it's like having the equivalent of armed snipers every ten feet around a Fort Knox protecting only a few bags of pennies, nickels and dimes located inside.  Send half of them home and the pennies aren't left any less secure than before.

Very good analogy! I like analogies :P