Potential Negative Effect of Bitcoin Halving

On July 26, the bitcoin block reward will decline from 25 btc per block to 12.5, limiting the number of bitcoin in circulation. While many believe this could increase the price of bitcoin, it actually could potentially go the exact opposite direction.

The blocksize debate has been the most highly anticipated discussion in the bitcoin community. With the birth of Bitcoin Classic, a proposal to increase the bitcoin blocksize by 2 MB, bitcoin miners, CEOs and startups have all weighed in on the debate, with a consensus to increase the blocksize. Currently, the bitcoin blocksize averages at around 650 mb, 65% of the maximum capacity. Because of the increasing number of transactions, the bitcoin blocksize reaches its maximum capacity from time to time, resulting a significant delay in transaction confirmation and verification. In early February, users of bitcoin wallets and platforms experienced 24 hour to a few days of delay.

When the bitcoin reward for miners half in July, it will become difficult for miners to obtain bitcoin. Because of the restricted number of bitcoin in circulation, the demand of bitcoin will rise and thus the price will rise with it. However, bitcoin experts predict that bitcoin halving could potentially damage the bitcoin network due to the current 1 mb blocksize capacity.

If the number of transactions surge in July due to the rising demand, the blocksize will continue to maximize its capacity. During this time, users will experience delays in payments on commercial platforms such as BitPay and normal transactions on wallets like blockchain. If the blocksize limits the network in processing transactions, the demand for bitcoin could actually decrease, leading to decreased profits for miners. In an extreme event like this, miners could terminate their operations and potentially undergo a strike, wherein they stop confirming transactions and keep the bitcoin network safe.

The Bitcoin network is protected by computing power contributed by the miners and it is measured by a medium called hashrate. If miners begin to quit, the hashrate or the protective wall that guards the bitcoin network from potential attacks and data breaches will slowly vanish, leading to a much more insecure and inefficient network.

Thus, increasing the blocksize before the halving occurs could be crucial for both users and bitcoin miners.

3 Comments

  1. Nikolaj Belov April 4, 2016
  2. Coco April 4, 2016
  3. hcg2007 April 4, 2016

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