Thread by @DeFi_initiate

Building the DPC Model, Part IV
Adjusting the projection line to the diminishing effect of #bitcoin's halving cycle

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Part I:

https://twitter.com/DeFi_initiate/status/1490074936634871808

Part II:

https://twitter.com/DeFi_initiate/status/1490195229504200705

Part III:

https://twitter.com/DeFi_initiate/status/1490373792136249344

1. Latest weekly model update:

https://twitter.com/DeFi_initiate/status/1489939862274789376

DPC model background:

https://twitter.com/DeFi_initiate/status/1487837760324964354

2. The final adjustment to the projection line takes care of the diminishing effect of the halving cycle. The impact of the halving cycle was discussed in Part II. Why is this effect decreasing, and when will it disappear?

3. Recall that the block subsidy (miner reward) is cut in half every 210,000 blocks (~4 years). There are a total of 32 halvings programmed into #bitcoin, which means that the last halving will take place in the year 2136 (provided blocks are produced every 10 minutes overall).

4. If you are interested in the actual code, here is a deep dive: ma.ttias.be/dissecting-cod…

The initial reward of 50 coins is written as 5,000,000,000 sats in the code. 1 #sat is the smallest unit of bitcoin, equivalent to 10^-8 coins.

5. The binary representation of this large number is as follows:

0001 0010 1010 0000 0101 1111 0010 0000 0000
(spaces added for readability)

You can verify that these two numbers are the same by pasting the above into the Calculator app in Programmer mode (Windows or Mac).

6. The #bitcoin code shifts this number to the right by one bit every 210,000 blocks. This is equivalent to a division by 2 (binary = base 2) with the result rounded down (because the last bit is lost). After 32 shifts, we end up with just 1 sat.

7. This means that there can only ever be 32 halvings, after which the block subsidy disappears. When will this happen? 4 years after 2136, or in 2140 (approximate years). So there will be no halvings after 2140, meaning that there can not be a halving cycle effect beyond this.

8. This is why the impact of halvings will gradually decrease until 2140, at which point it will completely disappear. For this reason, we add a daily dampening factor for future projections. This factor is extremely small but will add up over the years.

9. We diminish the halving effect to the 3 sigma level (roughly 1/370) after 132 years. This results in a daily dampening (i.e., raising to the power) of about 1 - 5.33*10^-5 or 0.9999467.

10. You can think of this as the compounding effect of annual inflation. Inflation is not possible to notice on a daily basis, but can become significant over many years or decades. For example, $1 from 132 years ago (1890) is now worth over $30 today: in2013dollars.com/us/inflation/1…

11. We have discussed the four components of the #bitcoin Dynamic Power Cycle (DPC) Model in four instalments titled "Building the DPC Model," Part I-IV.

This thread concludes the series. Any questions?

@RemindMe_OfThis 1 Jan 2140

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