Every bitcoin in existance first passes through the hands of a Bitcoin Miner.
That is how the currency is issued.
Today the targeted rate that bitcoins are issued occurs at a level of about 7,200 new bitcoins per day — calculated using the 50 BTC per block and blocks solved about once every 10 minutes.
That level will be changing in about a year though when the block award drops in half from 50 to just 25 BTC per block. For the bitcoin currency itself, that drop has been known since its inception and would already be priced into the exchange rates. To miners, however, that drop will be felt suddenly. One day the income that each Ghash/s earns will be at one level, and the next day that revenue will drop 50%.
There are some miners who plan to shut down and some will liquidate even once the block reward drop occurs once block 210,000 is reached – an event that will occur perhaps as early as November or possibly as late as January 2013.
The difficulty level will adjust shortly after miners drop out but with the equipment representing an investment in time as well as money, many miners generally need to feel the pain in the form of electric bills exceeding revenues before they capitulate. At the same time, there will always be a chance that the exchange rate will climb enough to compensate for the decline in the supply of new coins.
Attempting to predict Bitcoin twelve months out is particularly difficult as this is the first block reward drop — something that will occur just once about every four years.
Anyone evaluating whether or not to buy a mining rig or to add capacity to an existing mining operation today should be keeping this block reward drop in mind in the decision process.
Written on 21 Dec 2011.