Judd Bagley Blog | The Second Big Test For Bitcoin | Talkmarkets
Date: Saturday, July 23, 2016 11:55 PM EDT

When a nation transitions from dictatorship to democracy, the main challenge is not, as one might think, a successful first presidential election. Instead, the biggest challenge is a successful second election. If the institutional strength necessary to resist the lingering restraining forces of the status quo ante remains in place, and in the absence of international observers, that nation’s chances of remaining democratic are said to be pretty good.

Cryptocurrencies like bitcoin are to fiat currencies as democracy is to dictatorship. Recently, bitcoin endured what might be the equivalent of its own second presidential election, which came to be known as “the halvening”.

The qualities that make bitcoin unique among currencies are almost too many to list, but primary among them is the fact that new bitcoin are generated through a process called mining, in which computers compete to solve the complex math problems by which bitcoin transactions are proven valid. As a reward, the owner of the winning computer is rewarded with a pre-determined amount of bitcoin. When the bitcoin software was initially created in 2009 the reward rate was 50 bitcoin, which initially, was the equivalent of pennies. In 2012, the rate was cut in half to 25 bitcoin, which by then was the equivalent of hundreds of dollars – enough for some to make a living mining bitcoin. In early July 2016, the bitcoin reward rate was cut in half again, to 12.5, which is still the equivalent of thousands of dollars.

The debate preceding the bitcoin mining reward halving were twofold: the effect on the price of bitcoin and, secondarily, the impact on bitcoin’s beloved decentralized nature.

Price

There were three anticipated and obvious effects of the halving on bitcoin’s price: up, down and neutral.

UP: Given the law of supply and demand, a significant reduction in the future supply of bitcoin would necessarily have the long term effect of increasing price. And, indeed, the price of bitcoin increased in ridiculous ways in the months following the 2012 halving, although it’s unlikely the manifold rise was entirely the result of the change in supply.

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Causette Adams 1 year ago Member's comment

While I think there is a future for digital currencies, I'm still convinced #bitcoin is a fad. $BCOIN $BCOMP

Judd Bagley 1 year ago Author's comment

Are you betting on Ethereum or do you think the digital currency of the future has yet to be developed?

Causette Adams 1 year ago Member's comment

I'm not familiar with Ethereum. I just think the future of digital currency lies with things like #ApplePay. I don't trust #bitcoin ever since Mont Gox went bankrupt and so many people lost their bitcoins. And bitcoins are too easily used by criminals/terrorists and I don't support that. There should be a paper trail that authorities can track (with a warrant) if needed.