There’s been a lot of chatter lately about the block reward halving and the effect it will have on nearly every aspect of Bitcoin. The halving mechanism is a very important part of Bitcoin’s functionality, ensuring that over time the inflation rate decreases to zero and creating the hard cap of 21 million bitcoins that we can never exceed. I’m sure it comes as no surprise to anyone involved that it’s officially gone off without a hitch, but there are still questions to explore.
Block 210,000, containing 457 transactions totaling ~25,421.7 BTC (and a whopping ~13.56 BTC in transaction fees) has officially been mined and the reward for mining it was successfully reduced from 50 BTC to 25 BTC. Congratulations Bitcoin and congratulations to Slush’s pool on their historic block!
The block reward halving obviously affects miners, cutting their revenue stream effectively in half and potentially driving less efficient miners out of business, but it also affects the rest of us in a great many ways. We’ve previously discussed the effect the halving may have on price (or may have already had) and in the days to come we’ll discover how accurate my silly internet polls actually are.
The halving also represents one more vote of confidence for our developers. I’m sure that the reward halving has been simulated in modified testnet setups a thousand times but we all know that what happens in the lab and what happens live on the ‘net are entirely different things. Our global distributed transaction network just made a drastic change in its behavior following rules set in motion years ago, exactly as planned and without error. We may now move forward with full confidence that the mechanism that makes Bitcoin deflationary is working as intended.
Speaking of deflationary assets, this also marks a turning point in the grand Austrian economic experiment. According to the Keynesian economic camp this should mark the moment where the sudden deflation sends us spiraling out of control – there will never be a more dramatic change in Bitcoin’s inflation rate than we’ve just witnessed, so if a dramatic reduction in inflation really does do terrible things to an economy, we should start feeling the effects soon.
The wide-reaching economic implications of the block reward halving touch everyone involved in this grand Bitcoin experiment. No one knows what we’ll see in days to come, though there’s certainly enough speculation – I for one am just happy to see the Bitcoin Clock strike midnight. Today is a day for celebration – as for the rest… only time will tell.
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