Is a Bitcoin “death spiral” imminent after yesterday’s huge difficulty adjustment?
Bitcoin recently experienced two massive mining difficulty adjustments. Is this something to worry about?
Before the recent halving, many prophesied a so-called “death spiral” for Bitcoin. This theory is based on the idea that the block reward halving leads to an exodus of miners due to the sudden lack of profitability from mining activities. As a result, the network’s hash rate decreases and the blocking time increases, which means that miners’ revenues decrease even more, pushing more miners off the network. This loop would supposedly continue until there is no one left to mine Bitcoin (BTC).
On September 20, Bitcoin experienced one of the largest mining difficulty adjustments to the upside in its history. In fact, it’s the second big upward adjustment since the halving. So, were the doomsday prophets right all the time?
To answer this question, we need to understand what triggers the difficulty settings. All Bitcoin miners compete to solve the next block. The more hashing power the network enjoys, the faster it can happen. To ensure that the spawn rate stays within 10 minutes per block, Satoshi Nakamoto incorporated a function into the protocol that adjusts the difficulty approximately every two weeks. If during this period, the time between blocks falls below that mark, the difficulty is adjusted upwards. If the time between blocks rises above that number, the opposite occurs.
These two recent tweaks came as a result of a huge increase in hashing power. Therefore, rather than supporting the death spiral scenario, it would seem to indicate the excellent health of the Bitcoin network.
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.