Effects Of The Second Bitcoin Halving - Essay Example

Bitcoin has undergone its second halving this July and has caused much speculation on the economic repercussions for Bitcoin miners.

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Bitcoin miners who earned 25 bitcoins per block will see their earnings drop to 12.5 bitcoins. This result of the halving is expected to reduce the creation of new bitcoins from 9% to 4% per year.

The halving has been expected for several years since the last halving four years ago in 2012. The reason for the halving is to keep inflation under control.

99Bitcoins states that the halving is necessary because unlike currencies controlled by central banks who can print more currency if necessary, Bitcoin operates as a finite commodity such as gold.

The halving was created to ensure that Bitcoin does not have economic disasters such as the hyperinflation.

Fortune reported that Balaji Srinivasan, CEO of the Andreeseen Horowitz backed Bitcoin company 21, described the event as a “New Year’s Eve” for financial futurists.

The website goes on to state that with less potential revenue fewer miners may survive. KnCMiner, a Swedish Bitcoin mining startup has already filed for bankruptcy.

The biggest worry for Bitcoin miners is that prices would have dropped after the halving. CoinDesk reported that while prices could decline in the short term after the market settles prices could increase.

The website goes on to reassure consumers that despite the fluctuations and uncertainty in the market the fact is that bitcoin has been halved before and survived.

Force is to note that bitcoin mining has been changing dramatically since the beginning, moving from individual mining to institutional mining concentrated in mining pools.

What could cause an interesting change to the market is the type of miners. Bitcoin Magazine co-founder Vitalik Buterin believes that a new wave of amateur bitcoin miners will replace the older miners.

Buterin stats that a new wave of Bitcoin enthusiasts will be upgraded with ready-made ASICs (application specific integrated circuits). Older miners will find that older machines are out of date and those who don’t upgrade will have to leave.

Actually, bitcoin price has been doing well after halvings, as it definitely supports bitcoin supply scarcity.

Leading provider of online foreign exchange FXCM states that the advantages of bitcoin are that it is less susceptible to inflation.

Indeed, the limited supply of bitcoin makes it particularly promising, as bitcoin will mature it will become more and more rare.

However, Bitcoin has been constantly attacked since its inception in 2009. Weekly Standard ran an article titled ‘Bitcoin Is Dead’ where it argued that Bitcoin couldn’t compete with sovereign currencies.

The article argued that this would be because governments give competitive advantages to central banks that Bitcoin could never match.

The fact that this is the second halving and Bitcoin miners have been preparing for this event for several years suggests that Bitcoin is still an attractive financial investment.

For Bitcoin investors 2016 has already been a very good year with bitcoin price advancing +50%, and the future looks bright.