It’s not the Mayan doomsday—it’s Bitcoin halving day. Within a day or two, the reward for block solutions in the Bitcoin block chain will be halved from 50 to 25 BTC. If you’d like to follow along take a look at the Bitcoin Clock.
Many of my readers will probably already know how Bitcoin coins are produced but we might as well go through a little refresher to explain “halving day.” Bitcoins are produced by the solution to extremely complex mathematical problems and these represent “blocks” in the coin chain that relate directly to how the cryptocurrency is delivered. Due to the difficulty of these mathematical problems it puts a rate limit on how many coins can be “mined.”
Every 210,000 block solutions and the system halves the reward.
The need to halve the reward is also related to the fact that there is an upper limit to the number of bitcoins available universally—after 21,000,000 there will be no more to mine and the economy will be complete.
Mineforman.com published a post speculating about how this halving will affect the future of Bitcoin prices, including why the algorithm works the way it does and how it affects miners. The foreman, Neil, explains that “mining is a delicate balance of difficulty vs electricity costs,” and that people often stop mining when the cost outweighs the difficulty of generating new coins (and therefore doesn’t pay for itself.)
He goes on to state that he believes that chances are good the exchange rate for BTC will rise as the difficulty rises; but this could be quickly mitigated as bigger-badder mining equipment (read: more sophisticated computer hardware such as video cards and GPUs) come onto the market.
No doubt, with the halved rate of BTC addition, the growth of the pool of bitcoins will slow down and speculative buyers of coins will react accordingly. The number of BTC added per day will drop from an average of 7,200 to 3,600 per day.
In this milestone moment for the cryptocurrency economists to throw in their two cents (or .02 BTC) and if you’d like a much better idea of what’s expected and how it may work, check out this StackExchange discussion.