The cryptocurrency market has been discussing the so-called death spiral that was ‘threatening’ Bitcoin at the end of 2018. Last year, Bitcoin (BTC) lost more than 80% of its value affecting the whole network. This mining spiral was triggered due to the fact that the coin was falling in price and mining activities were not profitable anymore.
Indeed, Bitcoin’s hash rate dropped around 50% since August until December. However, Bitcoin’s difficulty adjusted as well and the market recovered. Several miners left the market allowing the mining difficulty to adjust downwards. After it, the number of miners increased once again, growing 46% since December.
A professor from Santa Clara University called Atulya Sarin, wrote an article about how Bitcoin was entering a death spiral and that the coin could reach zero. The mining difficulty is adjusted every 2016 blocks mined, approximately every two weeks. At the same time, as Bitcoin hash power experiences a drop, the time for issuing a new block would also take longer. Eventually, mining activities become less profitable and leave the market. This then creates a death spiral.
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During an episode of Magical Crypto Friends, Riccardo Spagni and other crypto experts such as Samson Mow, Charlie Lee and Whale Panda discussed this issue.
Whale Panda explained that the difficulty adjustment aims at avoiding the death spiral phenomenon. At the same time, Mow explained that Bitcoin’s difficulty adjustment tends to happen slower than in Bitcoin Cash (BCH).
Riccardo Spagni commented on this issue:
“It’s self-corrective. But the other thing is there’s a limit to the amount of adjustment that can happen in each adjustment cycle. So it, very relatively speaking, adapts slowly, which means it can compensate to price volatility a lot better than some of the quick adapting algorithms that try and track difficulty a lot more closer.”
Furthermore, he went on saying that people forget that if miners exist they are going to sell the equipment and recover some of the money.
As soon as these miners enter once again to the market, they help the difficulty to grow up once again and stabilizing the market.