Akin Fernandez is the owner of bitcoin voucher service Azteco and an active technology blogger under the pen name 'Beautyon'.
In this piece, Fernandez offers his take on the upcoming halving of the bitcoin network subsidy and what it means for those who risk "being left out".
Very shortly, there will be an important scheduled change in the way bitcoin is generated. The rate at which new bitcoin is created will halve, an event popularly referred to as "the halving".
At the time of this writing, 3,600 BTC ($2.4m) are generated every day. This will be slashed to 1,800 BTC per day ($1.2m), and the rate will never ever increase.
Taking this into account, and some basic economics, we should be able to make predictions about how the perception of bitcoin may change, but since the perception of bitcoin is almost entirely irrational, save for the thinking of a handful of very clever men, it is almost impossible to predict how people will react to the halving.
Bitcoin was designed to be released onto the market in a slow and predictable way. This was done to incentivize the security of the network through its generation as well as limit the supply of bitcoin so that it could attain a nominal value and not "flood" the market. This plan has worked spectacularly well, and is a further testament to Satoshi's understanding of economics (The Austrian School) and human behavior.
From a plain utility perspective, nothing will change when the rate of bitcoin creation halves. You will be able to transact with your bitcoin normally and won’t notice any difference at all. As for the effect on the price of bitcoin, the price of bitcoin doesn't matter if you are using it as a money transporter.
You put $100 in vitcoin in at one end, send it over the network to your recipient, and she can either redeem $100 or spend that same value on Amazon via a service like Purse, or anywhere that accepts bitcoin.
Bitcoin’s price is irrelevant to the user if a company’s business model adapts to bitcoin’s true nature.
It is also important to bear in mind that the finite nature of bitcoin doesn't impede its long-term, low-level flexibility. Improvements can be made to the protocol, increasing capacity, guaranteeing anonymity and ensuring its distributed nature, all without touching the central benefit of bitcoin; its guaranteed limited money supply.
Furthermore, the amount of money that can "fit into" bitcoin before and after the halving will not change. The amount of fiat currency that can fit into bitcoin is infinite. Bitcoin can absorb all the money that currently exists in the world, and yes, that would be a good thing.
Bitcoin history bunk
Each bitcoin has a history attached to it. You can explore where a bitcoin has been using one of the many Bitcoin Explorer tools, one of the best being OXT’s Graphalizer application.
Because bitcoin is not anonymous (or well understood), there is a false idea that bitcoin can be “tainted” by circulation. This is why some businesses with bitcoin surveillance tools close the accounts of users that receive bitcoin from what they wrongly consider to be "tainted addresses".
Fresh bitcoin is bitcoin that has just been mined and which has never been spent. It has no transaction history, and nothing can be assumed about it, other than that it its spendable; it is "clean bitcoin" to their thinking, in this incorrect mental picture of bitcoin.
Obviously, the idea that there is "clean bitcoin" and "dirty bitcoin" is completely absurd; bitcoin is data, and everything people think about it is imputed. There isn't a strong market for “fresh bitcoin” yet, so that should not be a factor at all in the halving.
If it were, we would expect the price of fresh bitcoin to at least double. There probably won’t be a market for fresh bitcoin in the future when Bitcoin is more anonymous, which is the only perceived advantage of fresh or "history-less" bitcoin.
Perception changes however, could cause the price of bitcoin to spike. The halving of bitcoin’s generation rate is likely to cause an increase in speculation.
Anyone using bitcoin as a speculative investment will be interested in the halving. Simple supply and demand says so… or maybe not; Bitcoin exchanges are not rational yet.
It is reasonable to speculate that logically, this event and the others that will follow will increase the price and perception of bitcoin’s structural stability. People may start to understand that this halving is one of several to come, and now is the time to get into bitcoin before subsequent reductions in production kick in on schedule and the price spikes again.
It all depends on how you choose to use and view bitcoin.
One thing we can say for sure; bitcoin is an exceptionally stable system that is absolutely immutable. It is slowly beginning to dawn on people that you can rely on bitcoin to exhibit a fixed set of characteristics that cannot be changed by public opinion, a handful of men with a particular use case, or the desires of anyone who chooses to use it for any purpose.
The 'C' of money
The need for immutable international standards has been understood for centuries. It is impossible to perform trades for goods if everyone is using a different standard for weights and measures.
This is why the definition of the meter was very carefully specified in 1875 in The Treaty of the Meter at the International Bureau of Weights and Measures (BIPM) in Sevres, France. Thirty prototype standard lengths made of platinum-iridium ally in an “X” profile were manufactured to exacting standards and distributed to different countries.
By doing this, every country was "on the same page" when it came to the definition of the word "meter".
Today, the metre is defined as the distance travelled by light in 1/299 792 458th of a second. Bitcoin is like the length of a meter; a global standard that is securely set in the same way that one of the fundamental forces of nature is unchangeable; the speed of light, "c".
You can use the definition of a meter for any purpose. You can use it to produce rulers of wood or steel, or use it to create rulers made of light. The purpose of a meter is to act as a point of reference, a standard, that cannot change. Bitcoin is the same. It is not there to piggyback your political views or be an aid for your flawed business model, any more than the meter is there to aid cartographers over carpenters.
You must deal with bitcoin on its terms, in the same way that you deal with measurement standards and mathematical constants.
Once people begin to understand what the idea and impact of a global, math-based, non-governmental standardized monetary unit means (and the fact that you can transact with something that acts as a fundamental force of nature), the entire idea of what money is will change forever.
This has profound implications for every economic process and every person on Earth.
There are only 5,286,750 BTC left to be issued by the network.
Compared to the value of all the goods and services on Earth, this is a small number, taking into account that each bitcoin can be split into a million pieces. Clearly, bitcoin is one of the most undervalued systems, services, databases, assets, networks or tokens (depending on your application) currently available to man, and even if an ultimate total utilization is never realized, the truth of what bitcoin is cannot change because it is based on maths, and not people’s opinions.
Even if bitcoin absorbs 10% of all global commerce, it will be spectacularly useful and valuable.
Above all other considerations, this is the fundamental breakthrough; Bitcoin is an opinion-less, irresistible standard system based only on math.
It is globally available as an infallible means of exchange, and accounting without any new functionality being required. It belongs to no single country, is incorruptible, unstoppable and completely eliminates payer fraud.
The 2016 halving and the others that will follow as the bitcoin generation curve tops out are key points where this should be reiterated as a warning to those who still refuse to accept the consequences of bitcoin’s existence and the truth of math.
"A danger foreseen is half avoided, and a man warned is half saved". The danger is being left out of bitcoin.
For more on the upcoming bitcoin rewards halving view our complete article series here.
Fear of missing out image via Shutterstock