“If you mess with Bitcoin’s incentive system, the whole thing falls apart,” - Elia Yousif, Bitstocks CTO

For the past 18 months, Bitstocks has been hammering on about the importance of Bitcoin’s economic model in the light of the upcoming reward halving.

As the first halving events of 2020 (on BCH first, then on BSV) are expected in less than a fortnight, it’s time to recap. Here’s why we believe that Bitcoin is first and foremost an incentive system and how the halving will test which of the three Bitcoin node implementations (BTC, BCH, BSV) have been paying attention to Satoshi’s vision.

Bitcoin Halving 2020: The Bigger Picture, and Likely Outcomes

Bitstocks Relationship Manager, Antonio Shillingford, and CTO, David Arakelian break down the role of Bitcoin miners, the purpose of block rewards for incentivising network growth, the impact of previous reward halving events, and the projected impact of the 2020 halving on the profitability and sustainability of mining.

If the network were to stand any chance of scaling to the capacity needed to realise Satoshi's dreams, he had to design Bitcoin's incentive system to encourage immense growth. Satoshi planned it out so the set block reward would halve at a predetermined block height in order that the network would have to grow to compensate for the loss.

READ THE BLOG

Bitcoin Core (BTC) has been the dominant cryptocurrency until now. But, what if we told you a shift is at hand? In an episode of CryptoTime, Bitstocks Relationship Manager, Antonio Shillingford and Bitstocks COO, Stephen Ierotheou apply the principle of using hashing power to determine the fair value of cryptocurrency assets. The two compare Bitcoin Cash (BCH), Bitcoin Core (BTC) and Bitcoin SV (BSV) using this metric, and come to an exciting and promising conclusion...

Stephen and Antonio then delve into an even more dramatic metric: the effect that the May 2020 Bitcoin block reward halving will have on mining profitability. With BSV’s capacity growth and application development boom, the project is on track to remaining profitable for miners while keeping individual transactions cheap and instant.

(An edited transcript of the above video, "What BSV’s Technical Metrics & Utility Boom Reveal")

Miners have one of the most important jobs within this space, and the block rewards compensate them for their work. Although Bitcoin’s economic model subsidises growth of the network through a set mining reward, block reward halving events are supposed to encourage utility development. A higher volume of transactions and transaction fees can ensure miners a stable income, even when the set block reward dwindles as is happening around May 2020 - about 40,965 blocks from here.

Without an increase in transaction fee derived mining rewards, the BTC price will have to double, or miners will be out of pocket. Given BTC’s tiny little Lego blocks that only allow a small number of transactions to be processed, it will be impossible to compensate for the loss through transaction volumes. Instead, miners will have to push up the block reward by pushing up the minimum fee that they’re willing to accept per transaction. Transactions submitted with lower fees will be outcompeted and stand little chance of being processed. At the end of the day, the traditional Fiat system that’s already in place will allow much cheaper transactions anyway.

Either way, the Bitcoin block reward halving will take a huge chunk out of the mining incentive, and a lot of miners will likely give up on BTC mining. As miners drop away, so will the network’s hashing power.

READ THE TRANSCRIPT

Emmanuel Alamu and Elia Yousif talk about key dates for Bitcoin over the coming year with the Bitcoin reward halving as the most prominent. The myth that the halving event will necessarily lead to the doubling of the price is based on a misconception about Bitcoin’s supply and demand model. Bitcoin’s full supply of coins, 21 million, has been in existence since the beginning. The supply remains stable, leaving demand as the only fluctuating key barometer in the model.

Although previous Bitcoin halvings have coincided with a growth in demand to compensate for the reduction in the set mining reward, BTC and BCH’s lack of utility has led to stagnation. “Bitcoin node implementations that don’t have demand will start to see a slow death after the halving,” suggests Emmanuel.

Bitcoin and blockchain patents, Bitcoin reward halving 2020, Bitcoin SV transaction volumes, and the Bitcoin SV Genesis upgrade. In this episode of CryptoTime, Bitstocks Relationship Managers, Antonio Shillingford and James Coughlan discuss the direction that BSV is headed in and the progress it’s made.

Bitcoin Halving 2020: The Burning Question

BTC miners didn't listen to the big blockers and didn't help cultivate an ecosystem that will bring them thousands of transactions with fees that are denominated in Fiat.



They preferred short time profit over a sustainable business model.



Now let's see how that will play out. https://t.co/axuzwnr9aI — Gal Buki ($torusJKL) (@torusJKL) March 13, 2020

Once you understand the nuts and bolts of Bitcoin’s incentive model, it’s clear that it compels the network to pursue on-chain growth, or resign itself to chain death. The next few weeks will be the test that reveals all.

Drop us a comment on social media to let us know your prediction of the outcome!



