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The Bitcoin Halving Doomsday Scenario

The Bitcoin Halving Doomsday Scenario

There’s been a lot of chatter surrounding the upcoming Bitcoin halving that’s taking place roughly around the end of July 2016. One specific doomsday discussion called the “death spiral” or “halving disaster” has caused some fear within the community.  

Also read: Trump: ‘I’ll Build a Wall Around Banks to Keep Bitcoin Out’

Some Believe a Halving Disaster is Imminent

HalvingAt present, a miner receives 25 Bitcoins per block. When the reward change occurs this summer, the payout will be paid 12.5 per block. If calculations are exceeded by computational power, the July date could change. Now it’s expected by some that roughly around this time frame the price of Bitcoin should theoretically increase as mining output, and thus available supply, decrease. One theory presented by Bitcoin developer Luke Dashjr called “Hardfork to fix difficulty drop algorithm” puts to test the halving causing significant amounts of mining power to go offline, making it harder for transactions to confirm in a timely manner.

Dashjr writes:

We are coming up on the subsidy halving this July, and there have been some concerns raised that a non-trivial number of miners could potentially drop off  the network. This would result in a significantly longer block interval, which also means a higher per-block transaction volume, which could cause the block size limit to legitimately be hit much sooner than expected. Furthermore, due to difficulty adjustment being measured exclusively in blocks, the time until it adjusts to compensate would be prolonged.

Bitcoin-price-dropFollowing this theory, many others have presented this “death spiral” in discussions. One thing to note is that quite a few of these theorists represent altcoins and alternative blockchain camps. These theorists believe that when the halving happens, a significant portion of miners will drop off the network. This will make time between blocks longer and transaction capacity to max like it did on February 29th. They add that claim confirmation times will increase exponentially, and confidence in the network will plunge. Under this doomsday scenario, the price will be in a downward spiral.

On the other hand, because 
Bitcoin is limited and the halving will affect supply and demand, others believe the price should increase. The conversation has popped up throughout digital currency forums recently and one redditor believes the “death spiral is a hoax.”

AliceMiners leaving do not make economic sense,” the thread’s author writes. “The hoax is being based on a fixed currency rate that bitcoin is not, Bitcoin is a floating currency rate that follows the law of offer and demand.” The writer of the post explains there has been no economic explanation to back up the halving disaster claims thus far.  

Due to a suspected hashrate drop, some are also predicting that mining may end up not being profitable. The concern is that transaction time will make people lose confidence and proponents for a larger block size believe now is the time to raise the limit. Supporters of Classic and other fork alternatives feel this can be remedied by a protocol change.

However with the current schism within the community, a hard fork may not happen by the end of July. This theory is also what some call “fear, uncertainty and doubt” (FUD), which is meaningless against the honey badger of money that doesn’t care what you or anyone thinks.

What do you think about the Bitcoin halving doomsday scenario? Let us know in the comments below!

Images courtesy of Crypto-graphics.com, Pixbay, and Shutterstock

Tags in this story
bitcoin halving, Block reward, death spiral, Halving Disaster, Luke Dashjr
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Jamie Redman

Jamie Redman is a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source code, and decentralized applications. Redman has written thousands of articles for news.Bitcoin.com about the disruptive protocols emerging today.