

The Bitcoin Halving, Explained - abhayaluri
https://medium.com/ryze-crypto-digest/the-bitcoin-halving-explained-d1dd1c7833f0
While governments around the world are using quantitative easing to print money, Bitcoin is set to undergo quantitative tightening.<p>The Halving reduces the reward that miners receive for confirming transactions on the Bitcoin blockchain, and subsequently, Bitcoin&#x27;s rate of supply will be cut in half.<p>Here&#x27;s a deep dive I wrote on what the Halving is, and why it matters:<p>https:&#x2F;&#x2F;medium.com&#x2F;ryze-crypto-digest&#x2F;the-bitcoin-halving-explained-d1dd1c7833f0
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lolc
This paragraph neatly sums up the "gold" myths of Bitcoin:

> This means that things that are hard to create, and whose creation can’t be
> faked, have value. Bitcoin, like gold and other precious metals, has both of
> these properties. Mining Bitcoin requires large amounts of electricity and
> computational power. In fact, the Bitcoin network uses a similar amount of
> energy every year as the entire country of Venezuela.

Actually a distributed ledger is not the same as a rare metal:

1\. Unlike gold, Bitcoin can cease to exist. If nobody keeps the blockchain
alive, it doesn't exist any more. Try to make gold disappear from the ground!

2\. Unlike gold, the operators can decide to increase supply. Or reduce it. By
orders of magnitude. It's a code change. Try that with gold.

3\. Forks are abundant. Good luck trying to invent a new element.

4\. The economical benefit of Bitcoins is much too small to explain the energy
use. It can't even keep up with the transaction count of a small town. The
energy expenses can only be justified by expected future return. This is
actually where Bitcoin is somewhat comparable to gold as a valuable. It's just
that gold actually has real-world uses besides acting as currency. So we know
the price for gold won't go to zero. Unless of course we find ways to defy our
current physics!

~~~
deweller
I'll provide counter arguments to these statements.

> 1\. Unlike gold, Bitcoin can cease to exist. If nobody keeps the blockchain
> alive, it doesn't exist any more. Try to make gold disappear from the
> ground!

To kill the blockchain, one would have to destroy every single copy. Try
finding all of the thousands of copies of the blockchain archives around the
world and make them disappear.

> 2\. Unlike gold, the operators can decide to increase supply. Or reduce it.
> By orders of magnitude. It's a code change. Try that with gold.

The "operators" cannot arbitrarily decide to increase supply. It would require
a coordinated effort by developers, miners, exchanges and other node
operators. As past attempts to hardfork the bitcoin blockchain have shown,
this is extraordinarily difficult.

The value of gold can theoretically be decreased by orders of magnitude which
is effectively the same thing as increasing supply. Through a coordinated
effort by buyers and sellers the value of gold could decrease 10x tomorrow.
This is also extraordinarily difficult.

> 3\. Forks are abundant. Good luck trying to invent a new element.

Yes. Bitcoin is different than gold in this respect. I would argue this is one
of the advantages that digital currency has over a physical currency. Forks
encourage innovation. A fork of Bitcoin does not affect the main chain.

> 4\. The economical benefit of Bitcoins is much too small to explain the
> energy use. It can't even keep up with the transaction count of a small
> town. The energy expenses can only be justified by expected future return.
> This is actually where Bitcoin is somewhat comparable to gold as a valuable.
> It's just that gold actually has real-world uses besides acting as currency.
> So we know the price for gold won't go to zero. Unless of course we find
> ways to defy our current physics!

The market disagrees with your first statement. If there is no real economic
benefit to Bitcoin, then the market has been operating irrationally for many
years. While this is possible, it is becoming increasingly difficult to
justify a conclusion that the market is irrational.

Bitcoin also has "real-world" uses besides currency. There are timestamping
functions and tokenization protocols that provide a benefit beyond currency.
These are all digital uses, but very real.

~~~
lolc
Oh I don't want to kill Bitcoin. I'm just saying it can disappear. Gold can't.
Similarily, gold miners can't just agree to alter supply. It's impossible for
them to increase supply ten times across the board.

You claim there is a "main chain" in Bitcoin as if it were a physical fact.
That's one of the myths! It's called consensus protocol for a reason. Forks
are part of the protocol and sometimes splits require manual intervention to
stabilize the network.

The scarcity of Bitcoin is arbitrary. Markets being irrational for years is
nothing new. As long as there is influx of capital, it keeps going. Like gods
or other fiat currencies, Bitcoin depends on people believing in it to exist.

I agree that there are other uses for Bitcoin but they are marginal. The high
transaction costs of bitcoin mean that if we ever wanted those features badly
enough, a service with less energy consumption would be established.

~~~
Sargos
>Similarily, gold miners can't just agree to alter supply. It's impossible for
them to increase supply ten times across the board.

An asteroid containing gold can be mined to drastically increase the supply. A
gold asteroid could just hit Earth today and we could increase the supply with
current technology.

Yes this is a silly scenario but it's possible and just as likely as Bitcoin
randomly inflating its supply. Both can pretty much be written off as
impossible when discussing supply of Gold or Bitcoin.

~~~
lolc
It is a category error to equate cultural properties with physical properties.
Gold is universally scarce, durable beyond our imagination, and perfectly
fungible. While there are other elements with comparable physical properties,
cultural artifacts like Bitcoin can never qualify.

The guarantees of Bitcoin rely on technology (algorithms, Internet-
connectivity) and society (self-interest). If any of those things fail (say a
broken hash, a network partition, or just disinterest) Bitcoin can't fulfill
its promises anymore. But one can believe in them holding for a little while
longer. If others do the same, it keeps going.

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remmargorp64
Essentially, Bitcoin is a Ponzi scheme with deflation built into the algorithm
so that scarcity is artificially created over time to maintain the illusion of
value.

~~~
abstractbarista
How do you feel about the Dollar in comparison? It appears to me that one
constantly devalues the units held, like an invisible tax on the poor, while
the other appreciates.

~~~
remmargorp64
The US Dollar can be adjusted as needed, according to the needs of society
(such as population growth and economic expansion). It's backed by the force
of an entire military, and is also backed by an interconnected mesh of
dependencies across an entire global economy.

If the US government fails so spectacularly that the US Dollar loses value, do
you honestly think that the internet will even be working at that point? And
without functioning internet, there won't be anyone mining bitcoin, which
means that control of the blockchain will be easily seized by whoever has
control of the largest mining pool. This would very quickly result in complete
devaluation of Bitcoin (but not before whoever took control would be able to
cash in a LOT of money).

If we had truly decentralized peer-to-peer internet (think ham radio over mesh
with millions of portable devices or something) with truly peer-to-peer DNS
and full encryption, and no centralized control, then MAYBE bitcoin might have
a chance if the government collapsed. But we don't. So (at least for now), the
idea that Bitcoin would function as a viable currency in that scenario is a
giant joke.

It's true that the US Dollar is inflationary (while Bitcoin is
"deflationary"), but that is by design to drive economic growth. Simulations
(and history) have shown that with a slightly inflationary economy, people are
more likely to spend their money instead of holding onto it. This causes a
constant cycle of spending and earning, driving more goods to be created, and
causing more people to do more work.

Deflationary economies, on the other hand, often result with the economy
stagnating (because people are more inclined to just hold onto their money
instead of spending it). You could argue that this is better (because people
like the idea of their money gaining in value over time), but to make that
argument, you would have to prove that economic growth is a bad thing.

~~~
xur17
Alternatively, perhaps Bitcoin is just another payments system with a
different set of tradeoffs. Namely - it has a preset supply schedule that you
can easily see, which won't be affected by political whims, or change at a
moment's notice.

~~~
remmargorp64
Sure, and the same could be said about practically every other crypto-
currency.

As to the idea that it isn't subject to whims or political stability, I would
argue that one merely has to look at the history of Bitcoin's price to prove
that statement is false. Bitcoin's price is highly reactive to political news
and random whims of the market (as well as manipulation by bad actors).

I'm not saying that crypto-currency doesn't have its place. I'm just pointing
out that a lot of the fundamental principles that people swear by when it
comes to Bitcoin are flawed.

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dang
Posts without URLs get penalized, so I made your link be the submission. If
you want to say something else about the article, the place to do that is as a
comment in the thread.

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Animats
Short version: Bitcoin block reward halves every 4 years. Next halving is this
May. Much speculation over whether the price will go up or down. Profits to
miners decrease 50% if price stays the same.

~~~
lend000
> Profits to miners decrease 50% if price stays the same.

Nit: Revenue to miners decreases 50% if price stays the same.

~~~
Animats
Right. The cost of hardware and power is substantial.

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tromp
> Like gold, Bitcoin has a fixed supply.

Gold may have a finite supply, but it's been mined for millenia and has slowly
increased its supply rate over time, and will likely continue to do so in our
lifetime.

In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily
tilted to the first few years.

Its final century from 2040 through 2140 accounts for only about 0.5% of
emission.

The only point of the halvings is to be able to claim "finite supply". A
constant reward would still have the yearly supply inflation rate (stock to
flow ratio) going to 0, albeit more slowly. So crucially, supply would still
be scarce, would be more predictable (time independent), more fair to late
adopters, and be much closer to Gold's emission over our lifetime.

It would also avoid the inherent instability [1] of mining rewards dominated
by transaction fees.

If we further consider the fact that coins inevitably get lost, then even a
constant reward will yield a softcap of supply, where yearly emission merely
serves to balance the yearly losses.

Unfortunately, practically all cryptocurrencies subscribe to the notion that
early miners must receive greater rewards, even when they often already enjoy
lower difficulty.

[1]
[https://www.cs.princeton.edu/~arvindn/publications/mining_CC...](https://www.cs.princeton.edu/~arvindn/publications/mining_CCS.pdf)

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scottmsul
I think the stock to flow model is a little silly. S2F and price are both
coincidentally exponential, it's like the old pirates vs global warming joke.
That being said I do believe there's a chance the halvening isn't fully priced
in since this will fundamentally disrupt the amount of sell volume.

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nrclark
Doesn't Bitcoin need miners in order to continue to exist? Why would it
possibly make sense to drive the reward for mining down to 0 asymptotically?
At the end of that curve, doesn't Bitcoin cease to exist because it can't be
spent?

~~~
xur17
Miners also receive transaction fees.

~~~
abstractbarista
This is a crucial point. The idea with BTC is that as the block reward
decreases over time, transaction volume (and therefore fee collection) would
increase. This requires the network to be used more over time, which does
appear to be happening.

~~~
wmf
Given that transaction volume is capped, fees may be very very high in the
future.

~~~
xur17
There are several systems that would allow users to essentially batch settle
(ex: lightning network), at which point fees could presumably rise
significantly.

