Over the past couple of weeks, there have been a series of reports regarding a potential death spiral on the Bitcoin (BTC) network. This has created a great level of concern amongst investors regarding the near-term trend of the world’s most dominant digital currency. A top digital currency researcher and security expert, Andreas Antonopoulos, said that Bitcoin (BTC) is unlikely to experience a “death spiral.”
Why a Death Spiral Is Unlikely to Happen on Bitcoin (BTC) Network
On the Bitcoin (BTC) network, transaction blocks get filled up every 10 minutes. After miners mined 2016 blocks, the Bitcoin (BTC) mining difficulty was automatically readjusted by the network. The network was adjusted in a way that if the hash power on the network is more, the difficulty of mining the digital currency will be higher. Also, if the hash power is less, the difficulty of mining the digital currency would be lower.
A death spiral on the Bitcoin (BTC) network describes a scenario where the network’s difficulty fails to readjust automatically after 2016 blocks have been mined. This usually occurs when the hash power of the network continues to plunge at a very fast rate as a result of miners leaving the ecosystem due to the decline in profitability.
According to the explanation of Antonopoulos: “Many believe that if death spiral occurs on Bitcoin network, then many miners will say ‘okay, I no longer make enough profits due to the fact that the hash rate has declined by 50%, so I am going to quite mining.’ This would result in further declines, which would cause it to get slower, drop even further, death spiral, difficulty never adjust.”
Antonopoulos said this scenario can’t happen on the Bitcoin (BTC) network due to the fact that miners on the Bitcoin network operate mining facilities with a long-term strategy. A lot of top mining facilities and centers obtain equipment and electricity which can be used for years.
Major miners are not dependent on grid operators to meet their fundamental demands. Especially in countries such as China where a lot of mining facilities function in due to the cold climate and cheap electricity. Mining centers usually secure long-term electricity supply to keep their facilities running.
As a result, miners are more interested in mid to long-term profits and results instead of short-term profits. Hence, if Bitcoin (BTC) hash power declines further and becomes less profitable as the value of the coin plunges, miners are likely to continue mining until the value of the digital currency recovers.
Antonopoulos said: “One of the major reasons why death spiral is unlikely to occur on Bitcoin (BTC) network is that miners have a much more long-term perspective. This means they already have investments in equipment and they often subscribe for long-term electricity plans. They don’t pay on a weekly or monthly basis. Hence, if they need to wait to make profits in the next couple of months, they will not turn off their facilities.”
Bitcoin (BTC) Price Today – BTC / USD
At the time of writing, Bitcoin (BTC) is trading at $3,507 after an increase of about three percent over the past twenty-four hours. The current market cap of the digital currency is $61.08 billion with a trading volume of $4.99 billion over the past twenty-four hours.