There has been a lot of chatter lately about an impending event that represents a drastic change in the world of Bitcoin: In about 3 days the block reward is going to be cut in half from 50 BTC to 25. While it’s immediately obvious that this has potentially severe implications for miners everywhere, there is another aspect of the block reward change that opinions seem torn on, and I for one would like to take the temperature of the community.
It is known that the block reward is changing. It is known that it will be changing very soon. It is known that decreasing the inflation of a currency increases its scarcity and therefore its value. What’s not known is exactly how a market will react when the change is drastic and they can see it coming a mile away.
Bitcoin currently experiences an annual rate of inflation of about 33% – with the halving of the block reward that rate drops drastically to about 12.5%. Subsequent halvings will drop the inflation rate slowly to zero at which point Bitcoin becomes truly deflationary. We have sound economic theory for what should happen at every step along the way, but very few examples from real life where a massive reduction in the availability of an asset can be seen with exact precision years in advance. We don’t know the time scale of the market’s reaction.
The Bitcoin community seems to have divided opinions about what we’re likely to see in a few days, and while there are many theories most fall into one of two camps:
- The majority of the community is ignorant of the inner workings of Bitcoin, especially the inner workings of Bitcoin mining. Most of them won’t see the scarcity coming so we can expect a large increase in BTC value following the block reward halving – it’s simple supply and demand.
- Bitcoin is not only transparent about these things but has a community that knows and cares about them, too. Most Bitcoin users have seen this coming for a long time and the block reward halving is responsible for the price rise from $5 to $12 we’ve seen in recent days – it’s still simple supply and demand but the timeline is different.
It’s hard to know which opinion is right. Bitcoin is extremely transparent and it’s easy to see most of the market forces at play, but this specific issue comes down to one difficult-to-answer question: what percent of the community is aware of the impending change? It’s a hard statistic to find with any accuracy, but just for the hell of it I’m going to ask my audience anyway: