Topic: Why reward halving instead of doubling? - page 2. (Read 431 times)

Why the issue with early adopters having an advantage? They were the ones who risked the most on a completely unknown and unproven asset, who spent their time and effort to develop and promote bitcoin, who spent their money to mine at a loss when bitcoin had no USD value. I don't think it is unfair that they were rewarded for doing so.

There would still be a big drop off from 3 BTC to zero BTC in block reward once the supply limit had been reached. There needs to be a slow and gradual change from the majority of mining profit coming from the block reward to the majority of mining profit coming from transaction fees to ensure that mining reaches a stable equilibrium.

I'm not so sure. I think there are too many unknowns to assume it is fully "priced in". No one has any way of telling for sure how many miners will drop off and how many miners will continue after each halving, and at what difficulty the miners who dropped off will return. All of these things will affect the price in unpredictable ways.

Do you think reaching the maximum supply at the earliest time would be beneficial for Bitcoin? I don't think so. Also, if you are talking about early adopters, they have already been given a chance to hoard a lot of BTC during the times when it was easy to mine. Additionally, when the price is still at the cents, it is a lot.

Nothing is fixed in this world of ours, only the constants. The price of an asset is not one of them, and you can never be sure of its direction as well.

You make some valid points. What about a constant block reward, say 3 BTC per block until 21M BTC is reached? There would already be 150K BTC in circulation by year 1. The initial inflation would have been lower than it's ever been in Bitcoin's history so far. It wouldn't overly advantage early adopters and since it'd be a fixed reward it would not disincentivize mining over time.

As a side note, I'm partial to the efficient market hypothesis (e.g. Bitcoin's mining reward is public knowledge and already "priced in") so I doubt mining reward halvings have a large effect on price.

What makes anything valuable in life is scarcity. The hope in bitcoin price to increase is also in the scarcity. Anything not scares has little or no value.

Given the Bitcoin's goal of being an asset with the fixed total market cap, it would make more sense to have a lowering inflation than an increasing inflation. The increase in inflation makes Bitcoin less scarce as time goes by and whilst it doesn't favour the early adopters, it doesn't favor anyone at all.

The cost of mining does play a part in this; the steady decrease of the increase in supply helps the miners to cushion the impact on their loss in mining. Whilst the decrease in supply does result in an increase in price, ceteris paribus, it doesn't work in the real world. The mechanism to help the miner earn a profit is actually the difficulty. If the miners doesn't earn enough profits, some of the miners would shut off, difficulty would drop and those who are still in the game would earn more. It would achieve and equilibrium such that only those who produce a profit would be able to mine. The price isn't the only factor affecitng the miners.

I'd have to guess that Satoshi wanted to put all the best features of what we have today in precious metals, fiat and digital into one piece of genius work called "cryptocurrency". One of its best features imo is scarcity, because we want to be the few ones to own it and we want our asset to become rarer, not more usual.

BTC's price moves against the supply and together with its demand. When the block reward gets cut in half, a miner who mines approximately as much as they consume in resources (electricity etc) will either have to somehow sell their mined BTC at a minimum 100.01% higher-than-the-total-value price to have at least that minimum and unconsiderable profit of 0.01% or it would literally make no sense to continue mining it.

Imagine earning a silver coin per month as your salary and every 4 years your monthly piece of silver gets cut in half. You'd be in huge disadvantage, right? Well, if everyone was to receive exactly the same piece of silver a month and theirs had to get cut every 4 years in half too, we all would have to rise the value of the piece of metal by at least 100% or we'd all starve..

Not sure if the example above is great but I gave it a try and hopefully it's easy to understand. Scarcity, my friend! Scarcity is here to save us all

Your proposal would mean that bitcoin would never work.

To begin with, we would be generating a single satoshi per block. Between the launch of bitcoin and the next halving next month, we would only have generated a grand total of 0.0147 BTC. With such a small amount of bitcoin to circulate, it would be impossible for people to meaningfully trade or buy things with each, meaning it would never work as a currency and there would be adoption. There would also be nobody holding for the long term - would you hold an asset when you knew the supply is going to increase by over 1 billion times in the coming years? Of course not, as it would rapidly become worthless. There would be no demand, no adoption, no value, and a hashrate which could likely easily be 51% attacked like most altcoins.

Even if bitcoin somehow managed to overcomes these stumbling blocks and become a popular currency, in your model we would still only have mined 25% of all available bitcoin by 2132, meaning the supply would still quadruple over the next 8 years, resulting in the price plummeting.

How would mining possibly work when the reward suddenly dropped from 50 BTC a block to nothing? The vast majority of miners would immediately quit in such a scenario, leaving bitcoin wide open to a 51% attack.

All the replies misunderstood what I meant  (except the last one). I was not talking about changing Bitcoin's total supply (~21M) but merely changing the order in which the mining reward is distributed.


That's a good point but it wouldn't have been too hard to come up with a reward distribution that starts at say 1 BTC and stops when the total supply reaches ~21M BTC.

To reply another post, I do believe that Satoshi wanted to reward early adopters but even a 1 BTC mining reward would have achieved that.

1.
New generated coins are reduced, so the inflation rate is reduced.
Now the inflation rate is 3.7%. After halving, it will decrease to 1.8%.
After 2024 halving, the inflation rate will be lower than 1% which is lower than the inflation rate in almost all developed countries.

If new generated coins were to increase every four year, the inflation rate would increase. Reducing annual inflation rate is one of the main advantages of bitcoin comparing to fiat which is being printed all the times.


2.
In the first 210,000 blocks, 50 BTC/block were generated. This rate will decrease to 1 satoshi in 2136 (the exact year can be different)
Let's assume in the first 210,000 blocks, 1 satoshi/block were to be generated and this rate will increase to 50 BTC/block in 2136.
We are now on block number 1000. There are only 1000 satoshi. How can people trade while the supply is only 1000 satoshi and there is no unit smaller than satoshi?

The block reward started from 50 BTC and it converges to zero over time. It cannot start from zero, increase to 50 over time and drop to zero suddenly.

First of all, if the mining reward is increasing, that means the bitcoin available will be increasing too so that bitcoin is continuously available to mine. From the law of supply, the more the supply the lesser the price. So, bitcoin will not worth anything if the supply is increasing. So, it is better as the reward is decreasing.

The decreasing bitcoin supply is helping as a deflating mechanism and helps bitcoin keeps going. If the supply is increasing, the price will not increase or will reduce. The reason why people buy bitcoin and its rate of adoption increased was the fact that the supply really reduced in 2012, and because of this, people bought it more in anticipation that it will rise again after halving in 2016, all these are link to the reducing supply and decreasing miming reword.

So, if the supply increase, the demands will reduce because the price will not increase and nothing will lure people to buy bitcoin in the first place, if people do not buy and the supply continues to grow, it means the price will reduce and ensue bitcoin to extinction. That is, bitcoin will die. So, the way Satoshi made it makes it keeping and makes it to be the strongest cryptocurrency.

Bitcoin supply is limited and that's all it explains.

No matter how expensive mining is, people will still do it to contribute and earn from it. Because in theory, while the amount of supply keep shrinking, the demand is increasing, and that's the reason why miners keep doing, believing price will soar halving after halving...

Because Satoshi did want to reward early adopters. I don't why people think that it's somehow unfair, early adopters take the most risk, and they should be rewarded more, period. Also halvenings very elegantly create fixed supply, our 21 million is the limit of a function that halves it's value periodically, and with your model you'd have to set some fixed block height after which reward is set to zero.

It makes zero sense, BTCitcoin have a limited supply and it is not like fiat where you can print unlimited amount whenever the government wants.The reason for the reduction in rewards is simply because BTCitcoin is a deflating asset.

Whether you like it or not every market favors the early adopters and there is nothing you can do about that.

BTCitcoin does not promise that the miners will be compensated all the time to maintain the network. The price will increase because of the number of coins mined will be halved and with the numbers of investors in the market and less amount of coins in circulation the price will increase gradually.

What was Satoshi's reasoning behind halving the mining reward over time? Why did he not instead choose to do it in reverse and double the reward at each "doubling" (up to 50 BTC and then 0 - same total mined reward but distributed in reverse order)?

It seems that increasing the mining reward over time would have made more sense for at least two reasons:

1) It doesn't favor early adopters.

2) As mining difficulty rises, so does the cost of mining and therefore, the reward should be higher as well. Of course the rising price of BTC compensates for that but as we've seen recently, the price doesn't necessarily grow all the time.

Discuss.