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I'm looking at the Total Bitcoins in Circulation graph and don't understand why there is a spike of coins being generated in Sept '12. What caused this to happen? red line indicates trend

Also, since there is a fixed number of Bitcoins that will be created, then I would expect this deviation would be corrected and fall in-line with the previous rate of growth. It doesn't appear that a correction has occurred. Which of the following will happen:

  • The final end date of new bitcoin mining will be earlier than planned
  • At some arbitrary date in the future there will be fewer Bitcoin being mined

Sure, the longer we wait the impact of that occurrence of inflation on 9/12 will decrease over time, but what happens the next time a Bitcoin mining spike occurs?

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Technically wouldn't that be inflation and not deflation? –  Jason Southwell Nov 19 '12 at 20:12
    
@JasonSouthwell - Thanks, I updated the q. I was focused on the "deflating value of an individual btc" and mixed it up. –  makerofthings7 Nov 19 '12 at 20:37

3 Answers 3

up vote 8 down vote accepted

A short term increase in the gradient on the graph can be caused by a large and fast relative increase in hashing speed of the total network. Within a short time, the difficulty adjusts and prevents it having a substantial long term impact. The steep gradient on this difficulty graph between 13GH/s and around 20GH/s is an increase of around 50% in hashpower in a very short time.

It won't be fixed, because it's not broken; it's working as originally intended. It does mean that the date the reward adjustment is halved comes slightly earlier than if the network hash rate remained constant. It also means that as the value of bitcoins grows higher, more hardware will be purchased and added to the network, and blocks will be produced slightly faster than the 10 minute average.

The final date of "new bitcoin mining" is of little consequence. Well before that date, miners will be earning more from transaction fees than from the block reward.

We can expect more of this when ASIC mining hardware comes online.

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In cases like these, I wouldn't expect the line of 'total bitcoins in circulation' to return to the drawn red line. The rate has returned to normal (as evidenced by the fact that the two lines are now parallel), but has been shifted up a little (probably due to a quick increase in the mining hashrate).

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Short term blips for increased mining capacity (and thus blocks mined, until the difficulty adjusted for it) does pull the end-date for the block reward subsidy forward (sooner), but that doesn't mean later dips can't push it right back, or further away (later) even.

Right now we are looking at Nov 28th, 2012 for the block reward subsidy drop to 25 BTC at block 210,000. Bitcoin block 0 was on Jan 3rd, 2009 so this is only 35 days early on a four year estimate. It also happened when the value of daily issuance at the day's exchange rate (and thus reward to miners) jumped from $0 to well over $200K USD (mined in a single day!) at one point in time.

But your "calendar" is off. Even though block 210,000 came a little early on the calendar, all 10,500,000 BTCs will have been issued by that time. So it isn't like there was a month of bitcoin issuance that didn't happen.

Also, the issuance rate will decreasing. Will anyone notice, decades from now, that the rate of issuance at a fraction of a BTC per-block came a year or more sooner?

In the grand scheme of things it is irrelevant. That blip doesn't even show on the log scale, and thus that event has no economic impact.

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