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I was wondering why Bitcoin has been designed in a way that rewards are decreasing while the difficulty of mining is increasing.
To me this is counter-intuitive and leads to the situation when miners from the early era were able to gain substantially more coins for doing substantially less work. Isn't that unfair?
Early adopters or miners make more profit. One could call this unfair, but that's life. Why does it need to be fair?
The reward is decreasing because the total amount if bitcoins is limited of time and the idea is that the incentive for mining should shift over time from the reward bitcoins gained when creating a block (aka. the coinbase transaction) to the transaction fees of the transaction included in that block.
The statement you make is not entirely true.
It's true that the rewards are decreasing. This is so because a constant rate would make Bitcoin inflationary, which is just what Satoshi Nakamoto wanted to avoid. The generation of bitcoins is predetermined and predictable.
But the fact that difficulty increases in not really correct. Difficulty adjusts in such a way that the generation of blocks averages to one block every 10 minutes. Because mining is still increasing in popularity, the difficulty mostly raises. But when rewards will decrease further, some miners might leave because they cannot make profit anymore. In this case, the difficulty will decrease.
While currently the difficulty almost always increases, Bitcoin history has already known decreases as well. The best reference on difficulty I could find is Pieter Wuille's website.
To bump price to the ROOF.
Count yourself, each day, each one get less and less bitcoins. Now 1BTC is a 1,000$.
One year ago, every miner was able get 1BTC so fast, easy, with ordinary GPU, from week to month, it does not matter.
Now you need a special device. Probably, next year you throw it in a landfill. And price of 1BTC would be so big, cause nowhere you can get it, but buy for $.
And by coincidence, it is optimal periods. Infrastructure around BTC already great, it grow exponentially, like difficulty. By last year, infrastructure, like exchanges, wallets, like coinbase, shops, appear in 10x more than previous 4 years.
Looks like this year - 2014 is a year of bitcoin's infrastructure, everywhere will appear shops, wallets, etc. In 2015 label of Bitcoin will be near Twitter's label, Facebook's label on every billboard on every corner.
2013 - is a year of ASICs.
