Towards the end of 2018, the entire cryptocurrency market was consumed by the thought that Bitcoin entered a deadly spiral. This laid its foundations in space when a professor from the University of Santa Clara, Atulya Sarin, published an article about how Bitcoin is entering a spiral of death and has declared that the currency is going to zero. This conclusion of the professor was entirely based on the price of the bitcoin which plunged below the cost of extraction.
According to the fundamentals of Bitcoin, the extraction difficulty will be readjusted once each block of 2016 will be extracted, about two weeks. If the Bitcoin hash and the participating miners see a sharp decline, then the time it takes to issue a block would also be extended by the current 10 minutes, which, in turn, would prolong the time needed to adjust the difficulty of extraction. This will end up bringing mining to become less profitable and several miners coming out of space, with a direct effect on the hash rate and repetitive cycle, thus creating a spiral of death.
In the last episode of Magical Crypto Friends, Samson Mow, Blockstream CSO, Riccardo Spagni, chief developer of Monero, Charlie Lee, the creator of Litecoin and Whale Panda, discussed the phenomenon of the spiral of death.
Whale Panda began by stating that "the whole point" of the adjustment of the difficulty is to prevent a spiral of death from occurring. This was followed by Mow stating that it is Bitcoin's difficulty adjustment in particular since it is much slower than Bitcoin Cash's emergency difficulty setting [EDA], adding that this regulation of the "super fast" difficulty could trigger a deadly spiral. By doing this, Whale Panda said that although mining will slow down eventually, taxes will eventually take over and become "more profitable for mine".
Riccardo Spagni said fluffy pony said:
"It's self-corrective, but the other thing is that there's a limit to the amount of regulation that can happen in every adjustment cycle, so, relatively speaking, it fits slowly, which means that can compensate for price volatility much better than some of the fast adaptation algorithms that try to trace the difficulty much closer "
Mow added that it is "more difficult to play something that moves slowly". Spagni also stated:
"The other thing that people forget is that if a miner comes out […] [they’re going to] sell that equipment to try and recover some money and that equipment may not be sold to a single player, it could be distributed between 100 or 200 miners […] so it's not always like that – get out of the system and then the difficulty decreases necessarily indefinitely could be reduced and when that equipment returns to service within a week or two it's back in backup "
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