What are the possible Doomsday scenarios for the 2016 Halving from 25 to 12.5 BTC per block solved?

Question

The 2016 halving is coming from 25 to 12.5 BTC solved for every block. For us to understand the effects. What are some possible doomsday scenarios that can happen?

Answer 1

I think you might be referring to the hypothesis that a large portion of the mining power would switch off right at the halving. This is theorized to kick off a chain reaction:

1. Lower network hash rate causes slow blocks
2. Slow blocks increase block space competition
3. Block space competition increases fees
4. Increased fees push users off network to competing coins
5. …
6. Bitcoin fails

I think this theory is a bit of a slippery slope:

Hashrate

More than half the hashrate has only come on-line in the past half year. Mining companies should be well aware of the Halvening and I'd expect them to consider it in their financial planning. Some might miscalculate its effect, but it shouldn't come as a total surprise.

I'd expect investments into mining hardware to slow down in the time before the Halvening, and mining companies to keep close watch on their revenue immediately after it. They'd first turn off the least efficient hardware, which reduces their cost the most and also has the least impact on their hashrate. Every piece of hardware that gets turned off makes the remaining hardware more profitable. It may dip, but gradually would find a new balance.

Similarly, some altcoin might be more profitable suddenly. Yet, as mining power switches over, competition for that altcoin's revenue gets more fierce, while the reduced hashrate in turn makes Bitcoin more profitable for the others.

Block space
More competition to enter the blockchain would not end the world. In some subreddits the narrative seems to be that full blocks would necessarily cause unconfirmed transactions to grow limitlessly. However, it seems much more likely that people would consider their transactions more carefully, and block space would be used more efficiently. E.g. major Bitcoin companies that do two transactions per payout would probably find a way to save some of those, mining pool minimum payouts might increase, you'd combine transactions where possible. Besides, it seems likely that SegWit would be deployed by then and block space might be less of an issue in general.

Competing coins
Bitcoin is the coin with the greatest security and utility. Paying premium for a feature that you don't need seems silly. If people move to other coins for low amount transactions, one or two of them might see a renaissance, but they wouldn't be able to overtake Bitcoin because they'd have all the same problems with scaling, governance, and software evolution once they get a similar amount of attention.

TL;DR: If the network's hashrate dips, it seems unlikely to happen instantaneously. It may decrease a bit over time. The resulting pains would incentivize more efficient behavior, but I don't see how they'd cause Bitcoin to fail.