What happens when the block reward halves to 25?

[Vorksholk]

Sorry, I'm sure this is answered somewhere but in my limited research I didn't find an answer...

What was the original reason for the reward half? Is it to increase coin value, to prolong release of all coins...? Just curious

[Stephen Gornick]

What was the original reason for the reward half? Is it to increase coin value, to prolong release of all coins...? Just curious

There's two goals -- to get a bitcoin economy functional where the currency circulates, yet at the same time allow it to function as a store of value.  Since the future demand can't be known, the only lever available is the supply.  

So if the issuance starts out fast but continually slows, it can serve both needs.



 - http://en.bitcoin.it/wiki/Controlled_Currency_Supply
 - http://en.bitcoin.it/wiki/FAQ#How_are_new_Bitcoins_created.3F

[Vorksholk]

Hey thanks for clearing that up Stephen.

[Stephen Gornick]

50% are sold right away?  So wouldn't that mean that halving the block reward should decrease the supply and increase the price by 25%.  Or is my logic derp?

The exchange rate is the balance of supply and demand at the markets.  So a speculator might be holding onto coins with the same expectation as you (that lower daily production should mean an increase in the price) but then plan to cash out after the halving occurs.  If there are many speculators with the same idea, there could be instead of an increase in the exchange rate a sharp decrease as many unload their previously hoarded stashes.

What is known is that today's valuation of the currency is about $60 million but there probably is not so much use of the currency as a currency that that valuation makes sense.  Each day there is less than a million dollars of trading at the exchanges (to and from fiat) and the are no runaway commercial successes (e.g., revenue in bitcoins equal to a hundred million $s worth of revenue per year or more) yet.  As a result, there could be made the argument that so much of bitcoin's current value is from speculators who may be holding out to see what happens after block 210,000, but then might unload large amounts.

Nobody knows, that's why it is called speculation.

[Raize]

As a result, there could be made the argument that so much of bitcoin's current value is from speculators who may be holding out to see what happens after block 210,000, but then might unload large amounts.

Nobody knows, that's why it is called speculation.

This is a good point. I think the forum sentiment has been, at least so far, focused on the demand staying the same and the supply not increasing. But there could be a significant number of speculators who do not mine and have absolutely no intention of mining, that are waiting for the block reward to halve so that they can sell significant shares into the steady demand anticipating that the supply isn't going to be there.

I still think that, given what happened to Solidcoin, the initial result is going to be an increase in price, but I do think some people are expecting the price increase from November to December to be in the 100% range, to match the block reward halving, when it's probably more likely going to be increasing BEFORE that, and thus the change from November to December will be considerably smaller.

[rampone]

Beware of the block reward reduction!!!

[rjk]

I just had to make lazr noises with my mouth after seeing that picture

pew pew pew!

[crazyates]

So after december, we have another 4 years before the block reward gets halved again to 12.5 BTC?

[DeathAndTaxes]

So after december, we have another 4 years before the block reward gets halved again to 12.5 BTC?

Well ~4 years.  The blockchain measures everything in blocks.  We have 210,000 blocks between subsidy cuts.  We have 2016 blocks between retargets.   Now why Satoshi didn't make the reward reduction period a multiple of the retarget period?  I will never know.

If the target of an average of 10 minutes per block is maintained that is ~1458 days (2 days short of 4 years).

[smoothie]

If there's no panic(or bubble, or special events), it will gradually forces the price higher. You'll not see a big difference on a small period, but on a longer period, it will affect the price.

It will probably cause a bunch of miners to lose their profitability, and my guess is that some will quit the market. If miners quit the market, it will force the difficulty down, giving more Bitcoins to those who stay, helping them stay profitable.

But it could also create a panic. "Oh my god, there's going to be less Bitcoins, let's buy them!" sort of thing. In that case, well, everything can happen.

My call? My entire being except my instinct tells me that there will be no panic. My instinct tells me that people are going to freak out and create Bitcoin Bubble 2.

I LAWLed at the bolded statement...

hahaha

 

[jjiimm_64]

When i heard "there will never be more then 21million bitcoins" My first thoughts were:  You can always dig up more gold out of the ground, but you cannot make more bitcoins.


bitcoins will be more valuable then gold.  Providing the internet stays up and nodes can stay connected.

[smoothie]

When i heard "there will never be more then 21million bitcoins" My first thoughts were:  You can always dig up more gold out of the ground, but you cannot make more bitcoins.


bitcoins will be more valuable then gold.  Providing the internet stays up and nodes can stay connected.

Just fork the chain...there you got more "bitcoins" but they are called something different. Litecoins are a fork of bitcoin so there you go. Voila

[jjiimm_64]

When i heard "there will never be more then 21million bitcoins" My first thoughts were:  You can always dig up more gold out of the ground, but you cannot make more bitcoins.


bitcoins will be more valuable then gold.  Providing the internet stays up and nodes can stay connected.

Just fork the chain...there you got more "bitcoins" but they are called something different. Litecoins are a fork of bitcoin so there you go. Voila

i disagree, you do NOT have more bitcoins, you have something different.

[Fiyasko]

When i heard "there will never be more then 21million bitcoins" My first thoughts were:  You can always dig up more gold out of the ground, but you cannot make more bitcoins.


bitcoins will be more valuable then gold.  Providing the internet stays up and nodes can stay connected.

Just fork the chain...there you got more "bitcoins" but they are called something different. Litecoins are a fork of bitcoin so there you go. Voila

i disagree, you do NOT have more bitcoins, you have something different.

I agree with this disagree.
They are not accepted as a regularly like the standard "bitcoin" is accepted.
Even "tainted coins" get bad rep...

[SleeperUnit]

If the target of an average of 10 minutes per block is maintained that is ~1458 days (2 days short of 4 years).

3 days short of 4 years actually since one of those will be a leap year.   

[meebs]

Is your power rate > $0.10 per kWh?

The relevance of this depends a LOT on the % of the year that the given miner uses heat/AC.

More heat = power costs matter less, as they save on heating.

more AC = more 'double dipping' as you then have to AC all that heat your mining creates

[dlasher]

As of today 9/25 - 50/25 drop is predicted to  happen as of 11/30/12

What happens? Combined with the potential shipping of ASIC hardware? (Toss in the remotest chance of pirate dumping coin back to people..)

Short Version:

Panic, chaos, volatility, and outright mayhem. Dump dump dump screaming ahhhh fire death ahhhh!

I'm considering closing my eyes till March.


Long Version:

BTC price, difficulty, and THash rate are going to be a crazy rollercoaster ride till about January... or March?

ASIC miners will generate stupid amounts of coin in a short period of time till the first DIFF adjustment, which they will likely dump on the market in an attempt to recoup their initial investment before the reward drop, driving the BTC price down.

Crazy block rates will bring the 50/25 drop much sooner, potentially 1 week after ASIC's hit market instead of Nov/December.

Reward drop + Diff 5M  = end of 99% of GPU miners who pay for their power.

While Removal of 75% of the Network Thash rate is significant today, pre ASIC, it's meaningless when ASIC's have 2x'd or 3x'd the THash ate.

While a small potential factor, if Pirate does return any coin, that will also likely be dumped into the market, driving the price down.

You can either go 'long' with a cash position, or 'long' with a BTC position, but between now and March is going to be a crazy ride.















 

[DeepBit]

ASIC miners will generate stupid amounts of coin in a short period of time till the first DIFF adjustment, which they will likely dump on the market in an attempt to recoup their initial investment before the reward drop, driving the BTC price down.

Actually the amount of generated coins between difficulty adjustments doesn't depends on network speed, it's always the same (when block reward is the same).

[crazyates]

ASIC miners will generate stupid amounts of coin in a short period of time till the first DIFF adjustment, which they will likely dump on the market in an attempt to recoup their initial investment before the reward drop, driving the BTC price down.

Actually the amount of generated coins between difficulty adjustments doesn't depends on network speed, it's always the same (when block reward is the same).

Yes, but what he says is true. If 2016 blocks are mined in one week instead of two, the difficulty will compensate, but that's ~5000 extra Bitcoins that should not have been generated in that time frame. Also, all those coins will be mined by a few select individuals that have the first ASIC orders, rather than a large, diverse network.

[DeepBit]

Even if all 5000 BTC are going to be sold it would be just a fraction of a normal daily volume, may be around 10%.