Topic: What happens when the block reward halves to 25? (Read 12842 times)

BitPay didn't even exist in the 2011 bubble.  Now they have something like 1,100 merchants onboard.

SatoshiDICE didn't exist even in March of this year.  Now there are more than 10K BTC wagered each day.   (Remember, just 7,200 BTC are mined each day).   Sure, a single player will wager sometimes hundreds of BTC in a day, but this is real demand for coins that didn't exist a year ago.   Then add all the other online gaming methods and there's even more places that bitcoins go which were'nt around a year ago.

Add in BitcoinStore.com being price competitive with NewEgg and Amazon, and there should be even more reasons to be optimistic because this not only will prove that a merchant can do good volume of bitcoin sales, it shows that if merchants don't start accepting bitcoins themselves, they are opening the door for competitors to come in and grab market share.

And then the barriers to entry are so much lower.  Anyone with a smartphone can figure out Blockchain for Android or iOS.   Buying bitcoins is still not a hassle, but the options are continually improving.    Look how many traders are listed on LocalBitcoins -- which are not just conversions between bitcoin and fiat but are building local community.

There still aren't many good ways to short bitcoins, so if a rally happens it is probably going to be greater and faster than most are expecting.   I could see a lot of panic buying occurring due to the uncertainty from the halving of new coin supply.

With less than a month to go, I find Brunic's suggestion of a gradual rise in the exchange rate to be most likely.

Why? Demand is currently about USD$550,000 per week, or approximately $78,500 per day - that's just to keep the price relatively even, based exclusively on Gox numbers (~80% of open exchange markets). If that level of demand remains after the Great Halving (had to say it), then price will be rapidly bid up. However, there are other factors involved which we'll list, with a minus (-) denoting negative price pressure and a plus (+) for positive or upward pressure:

• + Great Halving
• + Demand remains stable
• - Additional coins may be sold from existing stock
• - ASIC devices are delivered
• + GPU mining force reduction
• + CPU/GPU botnet processing share decrease

We could assign weighted values to each item depending on subjective assessment of impact, but without knowing how quickly the GPU->ASIC transition will be, or how many coins from existing stock will be sold at market, we're grasping at straws.

Although unreliable and unscientific, there does seem to be a near-insatiable demand for bitcoins through off-exchange OTC channels. Where this demand is coming from, and whether it will spill over to affect the more official pricing is not within a reasonable range of estimation.

Assuming that the only variables which experience major shifts are the Great Halving and the introduction of ASICs, I think it's very reasonable to expect a sustained rise to and through the $12.60 level toward the low $20s. It's hard to see demand significantly decreasing at this point, and if it rises by ~30% from present the 2011 high comes into view - sustainably.

If additional stock is liquidated, the pace of price rise will be slowed somewhat. That's all, though. Whether it takes weeks or months, the price will rise against flowing stock. Aside from that, the most influential wildcard remains the ASIC situation - making it cheaper to generate bitcoins will draw competition. The difficulty may go 100x higher than it is now, maybe further. During that ASIC proliferation period, there will be downward pressure on prices as miners seek to recoup their hardware investment - with the ability to generate more efficiently, they can offer at lower rates than with FPGA or GPU systems.

The entire Bitcoin system is still vulnerable to failure at this point, and one thing is certain - volatility will rear its head. Keep in mind that the size of the Bitcoin economy is now much greater than it was in the 2011 bubble, so swings in a $10 range won't be as enormous as they would've been then. They will be immensely profitable moves.

thank you, captain obvious.

+1

thats right ..and one reason is that lot of miners arent in it for the short run and some don,t want $ they want BTC...

This is a crazy prediction. It is extremely unlikely that this will happen simply because it depends on a long chain of independent unpredictable events:

"Shortly before the split, people will buy up BTC to hold onto for the long term because eventually the price will go up significantly.  That means a gigantic price spike!"

There is no reason for people to buy a lot of BTC suddenly because of something that will happen eventually. There will be no gigantic spike for the reason you give.

"Then, when the blocks actually do split, the price will start to float upwards until too many decide that's "good enough" and dump off their coins."

Assuming the price rises, then maybe some people might sell, but maybe more people will buy. You can't predict when or if people will dump their coins and what effect it might have.

"A little sustained $0.50 dip after weeks of slow raising will spook everyone into thinking they missed the opportunity to sell off their BTC at top price so there will be a massive dump."

How can you possibly come up with $0.50? Why should such a drop "spook" a large number of people. The price of BTC has recently gone up and down by more than 0.5 BTC and nobody has been spooked into a selloff.

Anyway, your story is full of holes, as are all stories like this. It's an entertaining good story, but it is complete fiction. The problem with these stories that people invent is that they expect everyone to act similarly and simultaneously and they assume people will act irrationally. Furthermore, as I mentioned at the  start, they depend on a long chain of independent and unpredictable events. If the first part of the story is off by just a little, then the entire story is wrong.

This could happen, but I expect there will be a delay between the halving and the price floating up.  In that time there could be a dip that panics some people.

agreed that it's  a likely scenario - but a month later, where will it be? a month after that? we're in for a heck of a winter. it MIGHT stabilize by march, but since we know Avalon's are only shipping in late feb (for main production run) even that's unlikely, in my opinion.

I'm so-so at predicting swings in the price of BTC but this one's so gimme, I have to.  Shortly before the split, people will buy up BTC to hold onto for the long term because eventually the price will go up significantly.  That means a gigantic price spike!  Then, when the blocks actually do split, the price will start to float upwards until too many decide that's "good enough" and dump off their coins.  A little sustained $0.50 dip after weeks of slow raising will spook everyone into thinking they missed the opportunity to sell off their BTC at top price so there will be a massive dump.  The miners waiting for the price to stop going up to sell and pay off their ASIC mining hardware debts will dump em off too.  That seems extremely likely to happen and similar things have happened in the past.

What will happen is the value of bitcoins will slightly increase. Hoard them.

would be dumb, to sell.  they would hold if they were smart.

+1

Last I checked, this subforum was called "mining speculation" 

lot of factors coming into play. 

-popularity of ASIC mining
- assumptions that ASIC miners won't hold
- reward halving.

anyone who says they know what's going to happen
to the value of btc post reward halving
is just a speculator.

Maybe eCSSam, since it has been renamed to eComStation.

when?
and will you become os1sam at that time? 

Hey, I still have most of my OS/2 2.0 floppies, 3.5" though, not the 5 1/4, bummer those would be worth something.

OS/2 is still halving, by the way.

You could make a currency based on OS/2 floppy discs.  I know they aren't making any more of those.

That would be a great analogy if only currency was based on gold anymore.  Too bad it's not.  If it were we probably wouldn't need bitcoin.

I thought that was ASIC's reaching critical mass?!?!

Probably right on this one.

I'll just leave this here.. http://business.ftc.gov/documents/alt051-selling-internet-prompt-delivery-rules

No, I wasn't saying I think 25TH will ship on November 1st. I was using that as an example.

You really think BFL can deliver 25TH/s on "day 0".  Given their track record?  Hardly.  Try doing the same thing but make the 25TH/s spaced out over the course of a month. 

While it's hard to know:
-- how much ASIC is actually presold,
-- how much will actually ship first batch,
-- the date those will ship on,
-- how fast people while get them online

Thinking out loud and using some easy math.

2016 blocks (or 100.8k btc) is generated between diff adjustments. Each diff adjustment is -about- 13-14 days

Let's assume 25Thash of ASIC miners get into the hands of the masses, on November the 1st.
Difficulty is 3.8M (assuming 10% jumps between now and then).

How much coin is mined at 3.8M difficulty?
day 1: 25TH will bring an extra 129 blocks into the network, or about 6466 coins. (adding to the 129 blocks from existing 25TH)
day 2: same
day 3: same
day 4: same
day 5: same
day 6: same
day 7: sometime in Day 7 (7.81 days in) you've hit 2016 blocks and diff is going up.  Diff is going up to 7M (based on 50TH network rate), and you've just killed any GPU miner who pays more than about 11 cents/kw/hr for their power.

You've also moved the reward drop date back from 11/30 to 11/15 or less, and mined about 45k extra coins.

So not "stupid" amounts of coin, but at $10/btc, that's still an extra $450k USD of coin you're expecting to sell, to .. someone?

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%.

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.

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).

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.















 

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

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

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

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

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

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.

I LAWLed at the bolded statement...

hahaha

 

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).

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

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

pew pew pew!

Beware of the block reward reduction!!!

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.

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.

Hey thanks for clearing that up Stephen.

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

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

You forgot that price is not just influenced by supply. Demand also plays an important role and will decerase if the price goes up.
Some users will buy more BTC weeks / months before the cut, because they expect the BTC/USD rate to go up, which creates a higher demand *before* the cut will happen.
Other users will sell their BTC after the cut to bring their profit home.

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?

I've heard half the coins mined are sold right away..

Does anyone know what perecentage of the coins being sold on a daily basis come from miners?  If most of the coins being moved by the big exchanges are just miners cashing in their profits, the lower supply should cause the price to increase.

Another thread on the topic:
 - https://bitcointalksearch.org/topic/date-for-25-btc-per-block-67185

I think this thread deserves a bump.

This ^^ and the 50BTC/block will be a fork of but no longer actually Bitcoin.

We don't need to. Bad blocks will be already rejected by existing code.

Maybe we need every major pool operator to take the "Oath of Satoshi" and promise to always run their pool and code in such a manner that it halves reward every 210k blocks and promise to always reject code that does not.

Difficulty doubling does.  So does price of USD: BTC falling half.  Both events have occured in the past many times and are essentially unpredictable.  The subsidy cut however is very predictable.

I thought we were talking about predictability...
As long as you factor in the subsidy-halving into your profitability calculations, you should be good to go. Difficulty, on the other hand, you can only guesstimate.

I don't believe difficulty increases have that much of impact on profit as cutting the payout in half. All we can hope is value of 1btc to double at least - Then its all good.

It really depends on the direction and size of moves in the btc/usd exchange rate.  This is because the pace of block generation (faster vs. slower) will generally follow a price move (increase vs. decrease).  For example, currently the difficulty hasn't caught up to the price move up -- and mining is still profitable for most, but only marginally so.   So instead of each block taking an average of 10 minutes, it is taking maybe 9 and 1/2 minutes as hashing capacity likely exceeds what the difficulty level target would suggest exists.

To get to a rough estimate on a date -- with roughly 7,200 BTC generated per-day then there are then 309 days remaining.  This puts the target at December 10th.  So to guess at the range then lets say we end up with a $10 BTC/USD by April, and a $15 by summer.  Block 210,000 (the first block where the reward drops to 25 BTC) could then come as early as mid-November.  If instead we drop back to a sub-$3 BTC/USD perhaps that block will come in late December instead.   Or maybe some affordable FPGA or ASIC design ships in quantity and we're there before Halloween!

Keep in mind though, no matter what exact day it occurs, it will nonetheless will occur with a known amount of BTCs issued by that time -- exactly 10,500,000 BTC.

[edit: added example to explain how price move can affect the pace of block generation.]

You're saying this completely predictable subsidy cut is a bigger problem than the mostly unpredictable difficulty?

I think the price will go up before the split. A lot of people are going to be expecting the value to increase and will start hording coins. I imaged the price will drop a while after the split but not fall below four dollars. Right now most people need the price to stay above two dollars to justify running a miner. After the split the price will need to be above four dollars to earn the same amount. It would have been nice if they had done a more gradual decrease rather then cutting it in half.

I believe this is huge problem for bitcoin stability, having 50% change in basically payout. I would be very careful on investments made till the change happens or at least make the investments break even on the rough date of change. I am normally pretty good on my gutt feeling when it comes to market and stocks and this I believe will have bad impact on price per btc, For how long idk...

Is there a link to an accurate estimate of the DATE that the block will split?

It's probably going to have some interesting effects of press in that it's a noteworthy event and might be covered in some tech/libertarian blog circles. I think that whatever happens ultimately more people will use bitcoin afterwards.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

I think that altcoins won't get any considerable chance to take over.
Keeping reward at 50BTC per block is bad.

Also, reward halving can work as self-fullfilling prophecy: people will expect price to rise and may stop selling BTC before the halving, causing price to rise.

In Bitcoin time that is years away. There will be many bubbles, innovations, and scams before that happens.

Hindsight being 20/20 and all but this is something I brought up in the past.  A continual decaying function would have been useful for determining block reward.  One would think some alt-coin would try it out but it seems alt-coins exist solely to be pump and dump junk.

Beware of block reduction!!!

IMO the block reward reduction "singularity" is one of the only real design flaws in Bitcoin.

Halving the reward in one shot will create an incentive for rational, profit-maximizing miners
to organize a 51% attack on the network, to maintain or even increase their mining profits
through evil means.

This possibility exists even today of course, but miners seem a lot more likely to organize and
attack right after (or right before) the mainstream network kicks them in the nuts
by halving the reward.

Maybe we will see a fork of BItcoin, which keeps the block reward at 50BTC, with a very high %
of the mining power moving to that - basically playing chicken with users to try
to make them switch to the 50BTC-for-life fork, by reducing the hashrate on the 25BTC
network to the point where someone else can 51% attack it.

To minimize these risks - the block reward should have been constant, or reduced gradually,
a little bit each block. People are less likely to notice, protest, and organize
against a gradual change. That is how governments become increasing large and oppressive,
fiat currencies become increasingly worthless, etc.

-rph

Hey! Dont forget about us miners that dont "pay" for electricity, Mommy does that..
and..
HEY!, dont forget about the noobs that sell at (any and every) price just to "get rid of this worthless 'coin' and get some (fiat) Real Money"
Or is it that either of the two suggestions that i have stated are Negligible to the overall market?
This peice is always the Hate card for me... Stupid people that just want to "get rid" of thier coins... and "just get money!!!"
The price could be $20, Then Three days later if it's $9, They still fucking sellout, Just Cause they want 'Real money' that 'Doesnt fluctuate'
They have no damn care for they're own market impact! And it hurts the market!

Dibs on the beef ramen.

It's actually 12/21/12.  We wouldn't want you devouring your ramen before you actually need to.

When all the miners will see their pay being cut down in half, I'm pretty sure a couple of them will start looking for a way to manage transactions fees. 

Oops.  Fixed.

Something is wrong with your calculations. 6 confirms is 1 confirm + 50 minutes on average.

That is interesting only the pool operators will be able to effectively make a change like that. Would only need 2-3 of the top pools.

Well it depends on how many miners.

For example:
if 50% of network includes your transaction in the next block, your 1 confirmation time is now 20 minutes.
if 25% of network includes your transaction in the next block, your 1 confirmation time is now 40 minutes.
if 10% of network includes your transaction in the next block, your 1 confirmation time is now 100 minutes.
if 4% of network includes your transaction in the next block, your 1 confirmation time is now 4 hours.

On edit:  Corrrection the % of network including the transaction doesn't directly affect 2+ confirmation times, only the first confirm time.

I agree though that as a practical matter it is unlikely one will be able to organize enough miners to push transaction fees higher.  Transaction fee rules likely need to be "revamped" to support a secure network in the face of falling subsidies. Honestly though I don't think it will really become critical until the cut to 6.25 BTC.  

As long as at least a small fraction of miners accept the no-fee transactions as well, even those transactions will eventually make it into the blockchain.  i.e., miners can try to force fees, but that action won't have much of an effect on the total amount of fees being paid.  The BTC generation reward will likely remain to be the primary incentive [edit: rather than transaction fee revenue] to miners for some time yet.

And maybe next year, miners will have nice software that's going to sort the transactions, to pick up the ones with a fee included and delay those without fees, forcing people to add fees to their transactions, and give a reason for miners to do their jobs 

Let's say maybe a third of the miners quit the minute the block reward drops to 25 BTC.   As a result the blocks confirm in 15 minutes instead of in 10 minutes each.  Three weeks later difficulty adjusts back to every 10 minutes.

Miners will be equally profitable.  If price remains static then profits will drop massively and the marginal miners will get squeezed out.  When they quit difficulty will fall and the remaining miner's revenue will go up.

To a miner difficulty alone is irrelevant.
To a miner price alone is irrelevant.
All that matters is the ratio (price / difficulty).

From a miner's perspective the drop from 15 USD:BTC to 8 USD:BTC is really no different than the drop from 50 BTC / block to 25 BTC / block.

Moral of the story:
Don't be the marginal miner.
Is your power rate > $0.10 per kWh?
Is your efficiency less than 2 MH/W?

If either one is true you might be the marginal miner.
If both are true well your fucked you ARE the marginal miner.

BUY NOW! profit in 2012

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.

This is one instance where there's an argument for alt block chains, if for no other reason than to give us an idea of how the chain behaves when you diminish the reward.  A quick look at the history of prices of SolidCoin when it reduced block rewards tells us that the price of each coin increases whenever this happens.  I'm uncertain whether you can draw any parallels about the exact ratio of block reward reduction and market price though.

Sometime later this year, the block reward will halve to 25. Assuming half the freshly mined btc is sold for fiat(as the poll of a tiny sample seems to show) that represents a supply of 3600btc/day to be sold for fiat. (this will be halved this year). The total daily transaction volume at MtGox and tradehill combined is roughly 100,000., varying quite a bit. Assuming miners will still sell half their mined btc and trade volume will still be 100,000, this means that when the change happens, the supply of btc will drop by only 1.8% or less. In other words, the price should not change that much. However, miners will have their revenue drop by 50% If one's mining ops is not making much money before the change, it will be a money-losing proposition for most, unless something else changes or I am simply wrong. Penny for your thoughts.....