The Bitcoin Block Halving is a central part of the Bitcoin system. Satoshi Nakamoto thought of a unique monetary ruleset within the Bitcoin protocol: as there are only ever 21 million bitcoins to be created in a decentralized matter, the rate at which the coins are generated will drop by half every four years. We are now approaching the second block halving in the history of Bitcoin.
About every 10 minutes there is a block found by miners and 25 new Bitcoins are created. Before November 28th in 2012, when the first block halving happened, the number of Bitcoins per block dropped from 50 to 25. Back then the price was about $15 and the market cap not much more than $100 Million. Today, there are 3,600 Bitcoins created by mining on a daily basis. Beginning tomorrow, it will be 1,800 per day until the next halving in four years.
Here’s an outlook on the event by our CFO Marco Krohn, who shared his thoughts with Bitcoin Magazine:
1) What impact do you think the halving will have on the Bitcoin price?
“The normal argument goes like this: Given constant demand for Bitcoin and the fact that the supply for Bitcoin is halving, the price should go up,” Krohn said. “While the argument is correct at the first glance, it neglects that the event is known to every participant and thus will be ‘priced in.’ Speculators will start buying Bitcoin before the event takes place and thus will anticipate the outcome. Some of the price increase we have seen since the end of May, might be attributed to that.”
2) What will be the impact on the Bitcoin network hashrate?
“We believe any drop in hash rate will be relatively small, like 10 to 25 percent. This is because electricity contracts are generally fixed for a longer period; if a contract doesn’t run out before the end of the month, you won’t stop mining before the end of the month. Likewise, the economics of mining mean that significant amounts of money is invested in hardware. Since people have been aware of the halving event, it would not make sense for them to invest in hardware in the last – say – 6 months if they’re going to turn their equipment off. Yet, most of the hardware was indeed added in the last seven to eight months. Add to that, that most of the investments in the last year were done with a much lower Bitcoin price in mind. Even now, new hardware is available from manufacturers and the roll-out is in full swing. Comparable events, like the Litecoin halving of August 2015, showed little impact on the overall hash rate, too.”
3) Are there concerns over a possible “death spiral”, e.g. miners dropping out and causing a block-congestion?
“The general ‘death spiral’ argument is correct. Blocks may fill up due to a drop in hash rate. But since our expectation is that this drop will not be too big, we believe that any congestion will be limited. It certainly will cause some annoyance, but on the other hand, most market participants are aware of it and will not dump their bitcoin for that reason. Also, a difficulty adjustment will take place two or three weeks later, after which things will be back to normal.”
Additionally, in regards to the price fluctuation after the halving we want to quote Andreas Antonopolous:
“I can’t predict price. No one can. Anyone who does, even for 10 minutes, is lying. The reward halving will change the inflation rate in Bitcoin. How that affects the overall economy depends on the conditions of all the other parameters in the economy: price, adoption, transaction volume, hashrate, difficulty, investments, other currencies, world market conditions, etc.”
Here are some links related to the topic:
Wikipedia: Bitcoin’s controlled supply
Bitcoin Magazine: Miners share optimism as second bitcoin halving approaches
