Halving day is almost upon us!

Built into the design of bitcoin is a mechanism that rewards miners (like us) for solving blocks.  Every block solved rewards the miner or pool 50BTC plus any transaction fees included in that block, it serves two functions;-

1. It encourages people to mine
2. It introduces new currency in a controlled manner.

Bitcoin is built so that this reward is halved every 210,000 blocks solved.  The idea is as bitcoin grows the transaction fee's become the main part of the reward and the introduction of new bitcoin's slows down to a trickle.  This also means that there will only ever be 21,000,000 bitcoins in circulation.

Well, in less than 4 days the block count will reach the first of these 210,000 block milestones and the reward for solving a Bitcoin block will half from 50BTC to 25BTC. (Have a look at bitcoinclock.com)

The implications to this are huge and for the most part unknowable.  There are two ways I can see it going;-

• Mining is a delicate balance of difficulty vs electricity costs, the price of bitcoin depends on the electricity cost to generate those coins so if the cost to generate a bitcoin increases the price of a bitcoin rises to match.
• People stop mining bitcoin because the cost outweighs the return and the difficulty of generating a bitcoin (currently at 3368767) plummets until it is once again profitable to mine.

I believe that it will be a mix of both, I think the price will rise and the difficulty will drop but that is just me speculating.  The truth is we are in for an interesting time, I don't even want to factor in the new bitcoin mining hardware (ASIC) that seem to be about to hit the market.