Is Bitcoin (BTC) High-Stakes Mining Actually Good?
The arms race of mining new BTC coins happens even at depressed prices - is this healthy blockchain economics?
The Bitcoin (BTC) hashrate set a series of records this year, rising to as much as 20 times the levels of 2017. This created an unprecedented condition of relatively depressed, even bearish market prices, and highly competitive mining.
Software developer Matt Hammilton asks whether this is a healthy development for BTC.
There is no certainty when it comes to BTC, and the record pace of mining in 2019 will be viewed as good or bad only in hindsight. One of the reasons for the peak activity is the upcoming halving of the block reward, an event widely expected by the community.
It is possible that the current accelerated mining is just an effort to bring out as much BTC as possible while the reward is still 12.5 coins per block.
The problem with highly active mining is that it can, in theory, break down at any moment, causing a capitulation. SHA-256 miners have made significant investments, and the activity depends on BTC market prices.
One of the biggest sources of gains has been the decision to hold onto some of the coins, which helped miners offset costs and reach unprecedented profitability. If some miners expect BTC to keep growing in the coming years, it is possible to rely on this growth to offset the investment.
Yet a capitulation of miners could also frighten the market, undermining the narrative of the security of BTC. Additionally, hashing power kept offline could always be put to use. For instance, the BTC hashrate in 2017 was around 6 EH/s - a hashrate that could be attacked many times over by all the farms that came online in the past couple of years.
Miners have so far behaved with no malicious intent - but if mining slows down from current levels, this will also mean a very attackable Bitcoin network, with equipment just waiting to join the network and potentially cause double-spending.
This is a far-fetched BTC scenario, which has been suggested in the past, but did not materialize. Yet 2020 will show for the first time how the halving plays out when miners already work on an industrial scale, far ahead of amateur mining and relatively small farms.