Bitcoin Halving (July 2016)

My point of view on the coming Bitcoin halving and the issue involving it.

The coming Bitcoin halving which is set to take place this July, at which point the Bitcoin block reward will go from its current 25 Bitcoin's per block to a half which is 12.5 Bitcoin's per block . This halving is set to continuously take place roughly every 4 years until Bitcoin's coin creation reaches its cap of 21 million.

Basic economics dictates that if the supply of something goes down and the general demand for it remains even just the same, the price is going to go up. And a price increase is necessary for Bitcoin miners to continue being profitable in light of a decreased reward. Satoshi Nakamoto envisioned that this scenario would work out just fine, but the issue here is the Bitcoin block size cap.

Let me explain, every time there's a price spike in Bitcoin the transaction volume on the network goes up to, as people rush to buy and sell based on the new increased price. When the block size cap is reached transactions will begin to delay, confirmations won't come in for a far longer period of time than usual. If this backlog of transactions happens at the Bitcoin having because of a price spike the results could actually be catastrophic.

If Bitcoin price does not increase and people decide that they cannot deal with the block size cap problems any longer it is likely that some or a lot of miners will turn off their machines and stop working on the Bitcoin network because it is no longer profitable for them to do so in light of the halved reward.

If this happens Bitcoin's hash rate on the network will drop but the difficulty level of the hashing work that has to be done will remain the same for a period of time. During the time that some miners dropped off the network and the time that it takes for the difficulty to adjust to reflect the new and accurate lowered hash rate. The work that existing miners have to do will be too difficult for them to continue getting out blocks every ten minutes as they are expected to. This could lead to longer periods of block time. Following with more transaction delays which would likely lead to a lowered price which would then lead to even more miners dropping off the network resulting in catastrophic events.

None of this would even be an issue if the block size cap were to be increased. That being said increasing the block size cap I guess is not exactly a walk in the park as the Bitcoin community have been trying to resolve this issue at hand for some time now. Long story short I hope it doesn't happen but it might and you should know about it.

Here's a link of the Bitcoin halving countdown : http://www.thehalvening.com​