What will happen when bitcoins reward halves to 12.5 BTC?

[Akado]

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

[xeroc]

Understood .. makes sense ..

I still think more people should consider that potential outcome prior to the halving ..

[bytemaster]

@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.

[xeroc]

@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?)

[Akado]

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!

[xeroc]

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 ..

[Riverhead]

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.

[jack_night2]

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.

[bitmarket]

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. 

[underjohn]

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.

[theoretical]

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.

[jonasmeyer]

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.

[Method-X]

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.

[gamey]

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..

[gamey]

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 ?


edit -

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.