Since the block reward is the only source of 'new' bitcoin, the rate of bitcoin creation will be halving as well. So there will be two competing effects:
1) 'monetary' inflation will decrease, because the rate of bitcoin creation will drop from 7200BTC/day to 3600BTC/day
2) miners will be earning half as much when denominated in BTC
If the decrease in inflation doesn't cause a large enough corresponding increase in price, mining would be less profitable, causing some fraction of miners to drop out, and meaning longer transaction confirmation times (for at most 2 weeks, while the network adjusts to the change in capacity).
My guess is that the huge change in inflation will adequately compensate both miners and investors, and cause a significant enough increase in price to avoid lengthening confirmation time.
I don't really have any expectations; there are so many variables to consider.
My guess, however, is that the price will be more stable, given that the effect of any bad news won't be so amplified by the minting of new coins. Currently, the supply of coins is growing rapidly (just over 30% per annum). After the block reward halves, that rate will be below 13% per annum.
As others have mentioned, I'm also curious to see how the halve will affect the network's hashing rate (and therefore, security).
javert|14 years ago
stuhood|14 years ago
1) 'monetary' inflation will decrease, because the rate of bitcoin creation will drop from 7200BTC/day to 3600BTC/day
2) miners will be earning half as much when denominated in BTC
If the decrease in inflation doesn't cause a large enough corresponding increase in price, mining would be less profitable, causing some fraction of miners to drop out, and meaning longer transaction confirmation times (for at most 2 weeks, while the network adjusts to the change in capacity).
My guess is that the huge change in inflation will adequately compensate both miners and investors, and cause a significant enough increase in price to avoid lengthening confirmation time.
https://en.bitcoin.it/wiki/Controlled_Currency_Supply
EDIT: by inflation, I mean 'monetary' inflation, rather than price inflation.
keen|14 years ago
My guess, however, is that the price will be more stable, given that the effect of any bad news won't be so amplified by the minting of new coins. Currently, the supply of coins is growing rapidly (just over 30% per annum). After the block reward halves, that rate will be below 13% per annum.
As others have mentioned, I'm also curious to see how the halve will affect the network's hashing rate (and therefore, security).