The total number of Bitcoins in circulation just hit 10.5 million, triggering a safeguard against inflation that was hardcoded into the digital currency. This means a drastic change in the number of new Bitcoins being created, which is expected to have a huge impact on the economy that has been developing around the ecurrency.
The safeguard has to do with the "block reward," the number of Bitcoins that can be created at a time, which has dropped from 50 to 25. Bitcoin miners, geeks who configure their own computers to mint the cultish digital currency, have been waiting for this moment for a long time — about four years, which is how long Bitcoins have been in circulation.
The sudden scarcity of new coins is likely to drive the value of Bitcoins up
The sudden scarcity of new coins is likely to drive the value of Bitcoins up, as fewer new coins enter the system and current Bitcoin owners hoard their stashes. It's also possible that the change will simply trigger a period of instability due to the sudden change in the money supply. Another factor could add to the turmoil: new chips custom-built for Bitcoin mining will make the process many times more powerful and efficient.
Exactly who designed Bitcoin is still a mystery. However, the ecurrency was engineered so that the technology could automatically adjust itself, replacing the need for a central monetary authority like the Federal Reserve. The block reward change is just one of many safeguards built into the protocol, which has been hailed as a masterful technological and economic accomplishment.
Bitcoin has been hailed as a revolutionary populist movement, but it's also a grand economic experiment. The market's reaction in the coming weeks will be the first major test of whether technology can replace government's role in regulating money.