BitShares Forum
Main => General Discussion => Topic started by: Method-X on September 22, 2014, 10:18:34 pm
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Just wanted to get some thoughts on bitcoins 2016 reward halving.
Right now, bitcoin is paying 25 BTC per ~10 minutes in the form of inflation to keep its network secure. When the reward halves to 12.5 BTC in 2016, the price has to increase dramatically to maintain the same level of security. If the price doesn't continue up, hashing is likely to decrease significantly. It's possible that 95% of mining hardware will be rendered obsolete, causing hash rate to plummet and difficulty to readjust.
Seems like a really big unknown. What will happen?
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(http://38.media.tumblr.com/ee7ca2675e642e894ae78832438ed969/tumblr_meopobxN7J1r6m9dwo1_250.gif)
and ...
(http://38.media.tumblr.com/1f5d420f5cf226170a5f00a9df2fe21b/tumblr_mifzemsAex1ry46hlo2_400.gif)
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Just wanted to get some thoughts on bitcoins 2016 reward halving.
Right now, bitcoin is paying 25 BTC per ~10 minutes in the form of inflation to keep its network secure. When the reward halves to 12.5 BTC in 2016, the price has to increase dramatically to maintain the same level of security. If the price doesn't continue up, hashing is likely to decrease significantly. It's possible that 95% of mining hardware will be rendered obsolete, causing hash rate to plummet and difficulty to readjust.
Seems like a really big unknown. What will happen?
Most likely we will see even fewer mining pools. At some point Bitcoin will be left with 3-4 mining pools at most.
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tic toc...
http://bitcoinclock.com/
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tic toc...
http://bitcoinclock.com/
wow thats cool - i like it. Is there one like this for other coins?
As for the TS - i think the price will go up in short term
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Just wanted to get some thoughts on bitcoins 2016 reward halving.
Right now, bitcoin is paying 25 BTC per ~10 minutes in the form of inflation to keep its network secure. When the reward halves to 12.5 BTC in 2016, the price has to increase dramatically to maintain the same level of security. If the price doesn't continue up, hashing is likely to decrease significantly. It's possible that 95% of mining hardware will be rendered obsolete, causing hash rate to plummet and difficulty to readjust.
Seems like a really big unknown. What will happen?
I guess its just economics, i mean, depends what the price of bitcoin, asic's and electricity are. It would be nice to think that at some point in the future there is the possibility of more decentralisation. For example If you imagine a company making asic products that heat your house or water and are available in store (last winter my house was heated by ltc mining, not profitable now). This then stops the farms having an advantage of scale as they waste all that expensive heat.
I say this because its hard to see what's round the corner when everything is already new and experimental. My personal guess is that there will be room for many crypto products all with there own market. No reason why you couldn't have btc, bitshares, maidsafe, etherium and even doge still around and prospering in 10 or 20 years. What will be interesting is their order in market cap and what new products join them.
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The difficulty adjustment will be priced in by the miners who will not invest in hardware that cannot pay back before that date or be profitable after that date.
Many miners will probably keep their rigs going full tilt while it is profitable (like PTS prior to a snapshot)... then when the reward halves miners will have to do the same work for half the reward..... no one has margins that high so "selfish miners" will turn off and allow the "selfless" miners to mine this could result a PTS style difficulty adjustment issue as PTS had the exact same problem after the snapshot. At todays prices and 0% margins... miners spend $1.4 million per day. After the adjustment they will have to continue spending $1.4 million per day, but will only earn $700,000.... a perfect 50% reduction in hash power it would take 4 weeks losing $700,000 per day before the difficulty adjusted back to 0% margins. This will cost the "selfless" miners $20 million dollars at todays prices.... however... the selfish miners will all want *someone else* to pay that $20 million dollars which means they will turn off their miners and instead of the "perfect 50% reduction in hash power" you will see up to 90% reduction in hash power and block times will increase to over an hour. Then after 2-3 months of a "selfless miner" producing blocks at a loss the difficulty will over-adjust down. Bitcoin will end up with a mining opportunity more profitable than today... for about 3-4 days as all of the miners turn on again.... then expect another 2-3 months of losses by some "selfless miner".
These assumptions are based upon experience with PTS and a halving on the mining reward or a 50% drop in share price will start the same sequence of events....
Bitcoin will have to hard-fork prior to the difficulty adjustment to use a more continuous adjustment like other POW coins had to (like gravity well).
These events all assume the following:
Bitcoin price is flat and mining has run into moores law, and margins are thin and primarily electric costs.
If Bitcoin's price runs up faster than new mining hardware can increase the difficulty and squeeze the profits then it could smooth the transition... on the other hand, if bitcoin is in downward trend when this hits then it will make the problem even worse.
Unless Bitcoin leadership admits they have a problem, lays out a plan at least 6 months in advance, I would watch out.
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Hmm. If many miners all turn off at the same time, and over 50% of the mining equipment in existence is idle -- might some malicious entity or coalition buy up all that mining equipment at a discount and try a 51% attack?
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Bytemaster, this mining chaos didn't happen at the last bitcoin block reward halving, is there any reason making it more likely this time?
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For those interested in historical curiosities, here's an article by Vitalik in 2012 about the last time the block reward halved:
http://bitcoinmagazine.com/2842/block-reward-halving-a-guide/
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The halving occurs every 210,000 blocks, which is roughly equivalent to four years. Why not simply perform a miniscule adjustment on every block, which occurs roughly every 10 minutes? To be equivalent to the four-year halving, the reward amount would simply be multiplied by a cumulative constant. That constant would be the inverse of the 210000th root of 2, which is 0.99999669930458749782628258129969. The resultant value would need to be rounded down to the nearest satoshi, so that it eventually rounded down to zero.
To make the conversion as equivalent as possible, it could either be done at the midpoint between two halvings (the next one being Nov 2014), or, at the next halving (in Nov 2016), a "half of a halving", i.e., a reduction by the square root of 2 (0.70710678118654752440084436210485) could be performed.
I'm surprised that this was not implemented in the original protocol by Satoshi. It just avoids a big abrupt event that will cause chaos.
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One thing I never quite got is why didn't Satoshi just go through the trouble to make a better decaying function. It is like BTC was meant to be a proof of concept which turned out to be a game changer.
Another thing I've wondered is.. Will they quit making better ASICs at some point? Will the block reward become so small that someone is able to buy this unprofitable crappy equipment over the course of years then destroy the network? Will they have to raise transaction fees to maintain a decent level of security? How will that impact small value transactions ?
It is like BTC has one chance of real long term survival then the only solution is to maintain security through appreciation ? Is that really a valid analysis ?
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lol @ posts while I was writing mine. Covered a few of my points already..
@matt608 THere is a signficant difference when mining is quite profitable and you have the blocks. When you're barely or not profitable, there won't be as much margin left to remain in the game.
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The halving occurs every 210,000 blocks, which is roughly equivalent to four years. Why not simply perform a miniscule adjustment on every block, which occurs roughly every 10 minutes? To be equivalent to the four-year halving, the reward amount would simply be multiplied by a cumulative constant. That constant would be the inverse of the 210000th root of 2, which is 0.99999669930458749782628258129969. The resultant value would need to be rounded down to the nearest satoshi, so that it eventually rounded down to zero.
To make the conversion as equivalent as possible, it could either be done at the midpoint between two halvings (the next one being Nov 2014), or, at the next halving (in Nov 2016), a "half of a halving", i.e., a reduction by the square root of 2 (0.70710678118654752440084436210485) could be performed.
I'm surprised that this was not implemented in the original protocol by Satoshi. It just avoids a big abrupt event that will cause chaos.
The thing is making it go to half is about the most abrupt change he could reasonably make. It all seems like random numbers, so why not just 10% adjustments but more often etc. 5%.. whatever..
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The halving occurs every 210,000 blocks, which is roughly equivalent to four years. Why not simply perform a miniscule adjustment on every block, which occurs roughly every 10 minutes? To be equivalent to the four-year halving, the reward amount would simply be multiplied by a cumulative constant. That constant would be the inverse of the 210000th root of 2, which is 0.99999669930458749782628258129969. The resultant value would need to be rounded down to the nearest satoshi, so that it eventually rounded down to zero.
To make the conversion as equivalent as possible, it could either be done at the midpoint between two halvings (the next one being Nov 2014), or, at the next halving (in Nov 2016), a "half of a halving", i.e., a reduction by the square root of 2 (0.70710678118654752440084436210485) could be performed.
I'm surprised that this was not implemented in the original protocol by Satoshi. It just avoids a big abrupt event that will cause chaos.
The thing is making it go to half is about the most abrupt change he could reasonably make. It all seems like random numbers, so why not just 10% adjustments but more often etc. 5%.. whatever..
I don't get it either.
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Last time around, the difficulty was relatively constant and the reward halved, and we saw a very smooth operation. On the other hand, while pools were a thing, I think the players in those pools were less professional, and there were basically very few data center operations.
Two scenarios are possible:
1) Difficulty is flat at the transition, which means margins are near 0% for the least efficient players. In this case, the least efficient players will be the first to turn off their rigs, because they will feel the most pain. Some of the more efficient players will keep going, because they will have high margins (people running off geothermal in iceland with cheap electricity and free cooling). Other folks will be willing to take negative margins, either because they want to throw their weight around and push weaker players out, or they are laundering dirty (criminal) money through their local power company into clean, new bitcoins. My guess is that the efficient miners + the miners willing to take negative returns temporarily + the miners doing money laundering are slightly more than 50% of the hashing power, because they are also the most profitable, so they reinvest their profits. Block confirmation times will probably spike to 20-40 minutes, then readjust after a month or two.
2) Difficulty is still climbing exponentially through the transition, which means margins are positive. In this case there will be no noticeable effects for the end user, although difficulty might start climbing more slowly.
Either way, it's not going to be a big deal. Price will probably also spike prior to the transition in anticipation of the smaller flood of new coins hitting the exchanges every day, which will push everyone more towards scenario two.
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One thing I never quite got is why didn't Satoshi just go through the trouble to make a better decaying function. It is like BTC was meant to be a proof of concept which turned out to be a game changer.
Maybe Satoshi didn't predict the meteoric rise of Bitcoin and the rise of GPU's, and later ASIC's, and the subsequent professionalization of mining. It's certainly possible to imagine a scenario where Bitcoin was valuable enough to make it worth mining with computers you needed anyway for other purposes, spending spare CPU cycles that would otherwise be wasted anyway, but not valuable enough to justify purchasing dedicated Bitcoin mining equipment. Satoshi might have predicted that scenario to be the stable state of the system, because people will always need computers for other things, and miners who can write off their equipment as a sunk cost will always be willing to mine at higher difficulty than miners who buy dedicated equipment. This analysis assumes, of course, that the hardware one would buy specially for dedicated Bitcoin mining has roughly the same hash performance as commodity systems useful for general purpose computing, which is simply no longer the case.
It's also possible Satoshi planned on remaining involved with the community for a much longer period of time, and using his status as the founder to build consensus for a hard-fork with a better function. But when Bitcoin turned out to get a lot more valuable a lot quicker than Satoshi predicted, he'd have had several reasons to changed those plans.
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Personally I believe it's game over for Bitcoin. I could give numerous reasons, the content of this post being one of them but this reason tops them all; the negative attitude the core Dev. team has towards API's says it all. Their need to hold on to omnipotence reflects why Bitcoin will wither and die.
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I think we will make the community very very very aware of the cost of inflation and they will price in the halving in the 6 months before, causing a near doubling before hand. My guess it will be quite smooth.
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Just wanted to get some thoughts on bitcoins 2016 reward halving.
Right now, bitcoin is paying 25 BTC per ~10 minutes in the form of inflation to keep its network secure. When the reward halves to 12.5 BTC in 2016, the price has to increase dramatically to maintain the same level of security. If the price doesn't continue up, hashing is likely to decrease significantly. It's possible that 95% of mining hardware will be rendered obsolete, causing hash rate to plummet and difficulty to readjust.
Seems like a really big unknown. What will happen?
I think in the end, this situation will be stable. Mining equipment is obsolete and this is reflected in the market Bitcoins. Low price Bitcoins someone profitable. The main thing is not to panic. Bitcoin stand the test. This site http://mining-profit.com/advanced-calculator helps me to monitor the situation.
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Toast, Nathan, and myself were discussing this very thing tonight. We came up with the following deadlock:
Scenario one:
1) The reward halves and Big Oil Miners already running on thin margins will go dark.
2) With the big boys turned off the diff is so hard the remaining diehards won't solve a block for weeks or months or years and the diff can't adjust until a block is found. Can Bitcoin survive that long with zero transactions processed? Certainly Overstock, NewEgg, TigerDirect, etc. won't put up with that .
3) Rinse and repeat every 4 years.
Scenario Two:
1) The Big Miners decide to mine at a loss to get the diff down. However since they need to have enough hash to get a block out the diff won't adjust as much. It is a tradeoff between an insufficient diff adjustment (too much hashing) and the block times becoming so long the transaction time is untenable (on an already super slow network).
2) A balance is found where the Big Miners can survive while the diff reduces back to profitable.
3) Rinse and repeat every four years.
Scenario Three (most likely)
1) The big miners see the golden goose is almost dead. Keeps the cash incinerator lit until the halving and walk away.
2) Diehard miners stay online until Bitcoin eventually produces a block after a year or so and the diff adjusts. Maybe someone will be around who cares. Everyone else will have long since jumped on to BitShares or some other DPOS/POS alternative.
3) No rinsing or repeating required.
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Toast, Nathan, and myself were discussing this very thing tonight. We came up with the following deadlock:
Scenario one:
1) The reward halves and Big Oil Miners already running on thin margins will go dark.
2) With the big boys turned off the diff is so hard the remaining diehards won't solve a block for weeks or months or years and the diff can't adjust until a block is found. Can Bitcoin survive that long with zero transactions processed? Certainly Overstock, NewEgg, TigerDirect, etc. won't put up with that .
3) Rinse and repeat every 4 years.
Scenario Two:
1) The Big Miners decide to mine at a loss to get the diff down. However since they need to have enough hash to get a block out the diff won't adjust as much. It is a tradeoff between an insufficient diff adjustment (too much hashing) and the block times becoming so long the transaction time is untenable (on an already super slow network).
2) A balance is found where the Big Miners can survive while the diff reduces back to profitable.
3) Rinse and repeat every four years.
Scenario Three (most likely)
1) The big miners see the golden goose is almost dead. Keeps the cash incinerator lit until the halving and walk away.
2) Diehard miners stay online until Bitcoin eventually produces a block after a year or so and the diff adjusts. Maybe someone will be around who cares. Everyone else will have long since jumped on to BitShares or some other DPOS/POS alternative.
3) No rinsing or repeating required.
*agreed* .. will be interesting to watch ..
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I think we should start planning ahead and have a clear road-map so we begin 2016 strong and take advantage of whatever happens to btc with the halving!
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@bytemaster: how about a provocing blog article in the line of your post above? Adding some of the remarks from the whole thread ... i have a feeling people are taking you blog serious already and we might be able to actually have the yet anotger article that shows "how bitshares experience improves the bitcoin protocol" (you get what i refer to?)
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@bytemaster: how about a provocing blog article in the line of your post above? Adding some of the remarks from the whole thread ... i have a feeling people are taking you blog serious already and we might be able to actually have the yet anotger article that shows "how bitshares experience improves the bitcoin protocol" (you get what i refer to?)
Too many factors... if Bitcoin is experiencing a growth spurt that causes the price to double in the months prior to the halving then it wouldn't have any problems at all.
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Understood .. makes sense ..
I still think more people should consider that potential outcome prior to the halving ..
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Understood .. makes sense ..
I still think more people should consider that potential outcome prior to the halving ..
That's why we need to be ready by then, either to edge people in case things go south, or to ride along the train
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Litecoin will halve in less than six months.. Just sayin.
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Reward halving (in USD) defacto happened two times since BTC ATH price.
Also, this time around same thing as last reward halving might happen, simply a temporary fall in difficulty followed by more hashrate coming online to return to previous hashrate, i.e. for two weeks you might get 4.5 to 5 blocks per hour instead of 6.5 on average, that's all.
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Bumping this very interesting topic, which Ive been thinking about a lot recently. My prediction:
The halving in 12 months will halve downward pressure (obviously) resulting in a probable doubling of the price to ~$500, meaning that mining will be just as profitable as it is now. The predictions of mining chaos are unfounded.
The halving will be great for Bitcoin because just 1.25 new coins every minute at a price of $500 is not a lot of downward pressure - Bitcoin's network effect means that users will be happy to keep buying in at that rate.
$500 / minute is a tiny cost to pay relative to a network with so much attention and demand.
Now that the halving is getting pretty soon, what do we think?
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Markets have already discounted the halfing... Price won't double because of the halfing, i will guarantee that
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Markets have already discounted the halfing... Price won't double because of the halfing, i will guarantee that
If existing traders think that the halving is already priced in and therefore think that the current price is fair value, they think that because the halving will increase the price later and therefore Bitcoin is worth holding onto now for future returns.
Litecoin more than doubled because of its halving. You cant guarantee anything.
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Anyone looking to spend real money on increasing mining supply is aware of the halving and will not be adding to this supply knowing its not profitable. This should mean a tailing off of production some time prior to the event. Difficulty then, should decline for a time until it meets an upward post-gap trend of the latest designed efficiency that makes sense with the new reward.
This assumes a stable price and conservative improvements in technology. A rising price would obviously smooth the transition and I think halving inflation should decrease the overall sell pressure via fewer miners selling to pay electric companies. Halving the expenses we're paying for security should make bitcoin a more profitable/less wasteful coin.
(https://i.imgur.com/BPHyjbT.jpg)
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The Litecoin reward will halve in 53 days http://www.litecoinblockhalf.com/
I think it has circa 30% inflation at the moment. So it requires $4 million of new money coming in every month to sustain it's price which it couldn't in the bear market and steadily declined and was close to dying.
Fortuitously for Litecoin, the crypto-currency competitor that was coming up to destroy it, BitSharesX is no more. So it is still the second largest true crypto-currency by a wide margin and enjoys popularity in both East and West. Given the Chinese stock markets recent turmoil and Greece's problems & knock-on effects, it's looking possible that it could see a strong increase in volume from both sides at a time when it's expenses will soon be halved.
Also unlike BTC which is used for purchases, resulting in retailers selling immediately for fiat and creating downward price pressure, the extra step involved in spending LTC as easily could work in it's favour in this regard too.
So it will be interesting to see how the reward halving combined with current events play out.
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(http://38.media.tumblr.com/ee7ca2675e642e894ae78832438ed969/tumblr_meopobxN7J1r6m9dwo1_250.gif)
and ...
(http://38.media.tumblr.com/1f5d420f5cf226170a5f00a9df2fe21b/tumblr_mifzemsAex1ry46hlo2_400.gif)
Star Trek works for everything! haha
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pow poor
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Prices will quadruple..invisible hands at work
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Prices will quadruple..invisible hands at work
one would hope, but there's no guarantee. if prices end up falling, we'll see plenty of miners going out of business and in some way PoW security degrading.
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Hi Guys, Just thought i would throw in a comment from a few conversation i had over the last couple of months;
I know a guy involved in a large mining operation in china (3 warehouses filled with custom built 16nm miners - shhhh apparently anything under 20nm is illegal in china...(military spec)) and he has suggested to me once before that they are profitable <$100USD p/btc at current block reward.
##i deleted all the details as they are a bit fuzzy in my mind and did not want to speculate or spread misinformation. i will say they are not on your everyday power deal and are looking to expand x3.
i will most likely see this guy this week so will clarify the details further and pull out a calculator to check some figures and repost if people are still interested.
I have no reason the doubt this fellow and the way he conducts himself it seems as though mining profits especially for their group are anything but thin.
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Hi Guys, Just thought i would throw in a comment from a few conversation i had over the last couple of months;
I know a guy involved in a large mining operation in china (3 warehouses filled with custom built 16nm miners - shhhh apparently anything under 20nm is illegal in china...(military spec)) and he has suggested to me once before that they are profitable <$100USD p/btc at current block reward.
##i deleted all the details as they are a bit fuzzy in my mind and did not want to speculate or spread misinformation. i will say they are not on your everyday power deal and are looking to expand x3.
i will most likely see this guy this week so will clarify the details further and pull out a calculator to check some figures and repost if people are still interested.
I have no reason the doubt this fellow and the way he conducts himself it seems as though mining profits especially for their group are anything but thin.
any price movement, but up, will likely flush out the uncompetitive miners and move more share of business to these kinds of outfits. thanks for sharing!
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I think the impact on the bitcoin price is not easily predictable.
At least in theory, a known event should not have an abrupt impact on the bitcoin price at that time, because all parties (bitcoin market participants and miners) reflect that information in advance when weighing up the economics of their current decisions. There may be an action required at that point (such as miners turning off equipment), but, again in theory, the potential for all those actions and their consequences should be built into the current price in a fully informed market. In fact the entire future schedule of reward reductions should, in principle, already be built into the market's valuation of bitcoin in this way.
That means that any resulting movements that do occur at such times are not directly from the event itself, but from endogenous market reactions as talk of the event becomes elevated and market participants try to collectively trade off the sentiments of all other players and less informed participants. This endogenous action may (or may not) trigger some increased volatility around the event, but, again in theory if the market were efficient (a big "if") at pricing in the events, it would not be possible to profitably predict the price reaction one way or the other.
Having said all that, the bitcoin market is very immature, so in practice it may be possible to speculate on whether the market is actually pricing in the event efficiently or not.
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I think the impact on the bitcoin price is not easily predictable.
At least in theory, a known event should not have an abrupt impact on the bitcoin price at that time, because all parties (bitcoin market participants and miners) reflect that information in advance when weighing up the economics of their current decisions. There may be an action required at that point (such as miners turning off equipment), but, again in theory, the potential for all those actions and their consequences should be built into the current price in a fully informed market. In fact the entire future schedule of reward reductions should, in principle, already be built into the market's valuation of bitcoin in this way.
That means that any resulting movements that do occur at such times are not directly from the event itself, but from endogenous market reactions as talk of the event becomes elevated and market participants try to collectively trade off the sentiments of all other players and less informed participants. This endogenous action may (or may not) trigger some increased volatility around the event, but, again in theory if the market were efficient (a big "if") at pricing in the events, it would not be possible to profitably predict the price reaction one way or the other.
Having said all that, the bitcoin market is very immature, so in practice it may be possible to speculate on whether the market is actually pricing in the event efficiently or not.
i agree completely that if the BTC market were perfectly efficient, then the reward halving should have no effect as it would already be anticipated by market participants. since we're so far from anything close to an efficient market in BTC, who knows...