Myth. The exchange value will be determined by the people willing to buy and sell bitcoins, and mostly affected by the volume of commerce done in bitcoins.
That's even worse. Now we won't even be tied to the electricity anchor at all. The price will be ridiculously volatile with no limits whatsoever. It will be a speculator's heaven and a spender's nightmare.
You're forgetting that eventually mining rewards will consist in transaction fees.
Not quite. Transaction fees are not a reliable estimate for the coin's price because they cost nothing. Does it cost you anything to fire up Bitcoin.exe and join the network? No? Me neither.
Until that point, halving will create a combination of decreased difficulty, increased BTC value, and decreased profitability for miners (which they'll have to consider in their business plans in advance).
Miners will never lose. If they did, they'll simply stop mining until it becomes profitable again. It's a fact of economics that mining is and will continue to be profitable for the foreseeable future (including expectations of price increase). I'm explicitly complaining from the "increased BTC value" part because it's simply perpetual deflation!
He can ask whatever he wants, he can't force anyone to buy at that price. There will be other coins circulating, and all miners combined will be a small part of the economy.
Rly? And what will determine the price of those coins? "Supply and demand" I hear you say? That's exactly where the catastrophe begins. Here we are, having a wild currency with no anchor with a daily (or an hourly, even) new price determined solely by supply and demand instead of by the stable cost of electricity.
There is nothing certain about it, bitcoins are a high-risk investment and will be in the foreseeable future. And again, halving will only have a small effect on the bitcoin value.
Anyway, a combination of growth and speculation allowed the bitcoin value to increase tenfold in a month without any relation to halving.
There is a very strong relation. Had the system been tamed from the start by a supply-fits-demand model, none of this crazy speculation would've been taking place. The amount of generated coins would then suit the number of generating nodes and everyone would be happy spending their predictable coins with no hoarders or investors ruining everything. Hell, I've got a nice sum of coins which I generated during the cheap times last year and you know what? I'm not spending them till I absolutely need to or till it seems the system is about to collapse. The thing is getting more precious by the month! You think I'm the only weird person thinking that way?
People will hoard some of their bitcoins, but most of them will know that their investment gains value by people using it and will be happy to use it themselves.
Oh, they might as well donate it to Santa Claus.
This will self-balance to some degree. If nobody uses bitcoins, any speculative bubble will burst, making people less tight-fisted about spending bitcoins, restoring some level of commerce.
What a great way to promote bitcoin. "Save till it bursts, spend, then save again!" Imagine if the Euro acted this way when it was rolled out. You're not taking this seriously.
Given advances in hardware and software, and the development of special-purpose mining hardware, it will be very difficult to find an objective system that will make the cost of creating BTC constant.
I just gave you one.
Also, once in a while the hashing algorithms used will be changed which will completely shuffle the cards.
That's included in the proposed model. The hashing will maintain the difficulty so that only 144 daily blocks are produced anyway. The difference will be in the amount of coins those blocks have.
I'm not against this per se. A system where the currency continues to be generated at a predetermined rate can work.
No. If the rate is predetermined we'd fall into the same problems. We want a flexible rate changing with the user base.
But people signed up to Bitcoin on the understanding that 21M is the limit, so this must be a separate currency.
According to that logic, we might as well stop updating the code no matter how grave mistakes we discover in it.
All that said, I agree that it seems that currently bitcoins gain their value more by speculation than by use. This is unfortunate, but is part of the growing pains and should stabilize to some degree in the future. "Stability" here means - the purchasing power will not fluctuate too much, but will still increase due the spread of Bitcoin at first, and due to the growth of the economy later.
That'll never happen. It will only get worse as producing becomes harder and the economy relies on the coins-in-circulation to determine the price via sheer supply and demand with no stable anchor like electricity.
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