The Great Bitcoin Halving

The Bitcoin network has been running for a few years now, with roughly over 14 million units injected into circulation by miners. In 2016, the community surrounding the currency has a major event taking place, in which miners will receive half the reward for mining Bitcoin after July 27, 2016 at 12:30:03 UTC. If calculations are exceeded by computational power, this date could change. Currently, a miner gets 25 Bitcoins per block, and the next halving is expected to cut this reward to 12.5 units. At present, the Litecoin network experienced a block reward halving, and has shown some unusual trends after the cut.

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A post from r/litecoin reveals that a Litecoin halving has taken place, but no significant changes have been seen thus far regarding price and hash rate. The redditor, Charlie Lee, creator of Litecoin writes:

“After the halving one would expect that either the price will go up or the hash rate must drop.”

However, Lee points out in the post that the hash rate initially dropped a touch, but has since reverted back to its original rate. The price of Litecoin had also not really moved much after the August 25th halving. Lee reveals some rumored talk from discussions at Scaling Bitcoin that miners located in China are seemingly getting free electricity or power at close to 0 cost from Chinese hydro-powered plants. He feels that the rumor must be true unless Litecoin miners are mining at a loss.

“So this makes total sense now. If the electricity is free or close to 0 cost, then there’s no reason for miners to shut down their machines. They make half as much, but still profitable. These miners have also been asking around at the conference to try to buy old outdated Bitcoin/Litecoin ASICs. With 0-cost electricity, they can keep those machines running and still make money.” — A THEORY WRITTEN BY CHARLIE LEE VIA REDDIT

Charlie Lee, creator of Litecoin continued saying:

“The reason why in theory halving will push up the price is because the supply dumped on the market will be halved. This is of course assuming miners were selling all the coins they mined. In practice, there’s a lot of other factors, so it’s unclear how the halving effects prices.” — Charlie Lee, Litecoin Creator speaking on r/litecoin forums.

All of this halving talk is general economic theory, and many are trying to predict these upcoming trends. Currently, the Bitcoin community has a little more than 6 million units left to mine. This fact leads many to believe that, when the halving occurs, the price should increase. This is all due to the fact that Bitcoin and other cryptocurrencies are capped for increased value within the economics of scarcity. The protocol has a block reward to encourage people to mine; in the far distant future after the year 2140 there will no longer be a reward for new blocks. However, miners will still be needed to secure the network, and the nature of the beast may be a completely distributed economy by then. Transaction fees after the last block is found will be the only measure of incentives for miners to continue operating.

All the Bitcoins we use today came from the original coinbase and was at one point a block reward for confirming transactions. Many variables affect the miners’ ability to find blocks, including the time frame of solving them. If blocks are solved at a faster rate than 10 minutes per by increasing the network’s overall computational power, the actual halving time frame may change slightly. The website Bitcoinclock has a countdown to the halving event and gives this time-frame disclaimer on its webpage. The event is assumed by the community within the restraints of economic theory, that the price will increase and mining will run into Moore’s law. Whereas margins grow incredibly thin and electric costs rise, affecting the miners overall return of investment.

So what will happen to Bitcoin when the halving occurs? Honestly, it’s anyone’s guess and watching the current reward drop on the Litecoin network hasn’t shown much change within the price value. Will the same apply to the Bitcoin network in 2016-2017? Many in the community hope for this event to drive the Bitcoin price up like it did during the holiday season of 2013, which had nothing to do with difficulty changes. The network had previously changed from a 50 unit block reward to a 25 unit reward and it didn’t really affect the value much either. However, when the difficulty changes, many miners sell their mining instruments prior to these events in hopes to buy faster and more efficient technology. This can be seen happening now, as Craigslist and Ebay have a lot of mining hardware for sale as the upcoming halving approaches. If miners don’t increase their technological output they cannot return on their investments, unless of course they get free electricity.

What do you think of the upcoming Bitcoin reward halving? Let us know in the comments below!

Images courtesy of Pixbay and Redmemes

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