Bitcoin (BTC): Is Mining Death Spiral a Reality?
The trend of miners shutting down operations has sparked fears Bitcoin may enter a “mining death spiral,” essentially making the network worthless.
A MarketWatch opinion piece published on Monday rekindled fears about a scenario where Bitcoin (BTC) crashes to zero due to miners throwing in the towel and leaving the network without computation. However, the crypto community came up with an explanation of why a complete network freeze is not likely.
Since 2013, Bitcoin mining has seen a race in adopting powerful ASIC machines. Mining continued to expand since building a mining farm in times of rising prices meant immediate profitability. Some miners sold for cash, while others relied on futures markets, and the constant speculation set off the costs of acquiring mining rigs, space, and a reliable source of electricity.
But for the newest mines, those built in 2018, the cost of producing a Bitcoin through block rewards may be lower than the market price. Several cut-off prices have been proposed as break-even for miners. For some, anything below $5,800 would be unprofitable, while some may generate a profit at around $3,800. It is hard to estimate the break-even costs of each mining operation, especially since the equipment has been acquired at different stages.
Even if miners slow down their activity, it is improbable that Bitcoin blocks will freeze. Assuming that a large number of them decided to shut down after the most recent difficulty adjustment, the network would still go on to produce 2,016 blocks, albeit at a slower pace. Experts point out that the block reward would not be the only benefit of miners during that time, and transaction fees would rise. In recent months, transaction fees in blocks have surpassed the size of the block reward (12.5 BTC). This means that miners have a better incentive to continue supporting transactions.
Even if many give up at the same time, the rest would reap the benefits, and then possibly continue to mine at a lower difficulty with potentially better rewards.
It must be remembered that Bitcoin was initially mined by a single computer, that of Satoshi Nakamoto. If more miners give up, the network may always find supporters. In the extreme case, some have suggested Bitcoin blocks may be calculated by hand although this is seen as a far-fetched scenario. But block production on a blockchain is not so difficult to stop, as other coins have shown. After a slow production period, regular blocks return. Also, there is the theoretical possibility of a new difficulty adjustment mechanism, which has been widely used with altcoins to switch difficulty more often.
Even at levels of around $3,800, Bitcoin may be threatened by other factors, including market speculation, but an end to block production is highly unlikely.
Neither the author nor the publication assumes any responsibility or liability for any investments, profits, or losses made as a result of this information. Cryptocurrency trading and investing are risky propositions, and market participants are advised to always conduct thorough research.