The concept of a bitcoin mortuary spiral has been around for many years. The basic idea is that a large number of bitcoin miners could interrupt mining almost at the same time because their business is no longer profitable. Because of the way the Bitcoin protocol works, this in theory would be tantamount to blocking the network. The faith in the Bitcoin network would collapse, which also means a price drop, which would lead to an even greater number of miners leaving the network. These two feedback mechanisms would then develop each other as the price kept moving towards zero.
There are a variety of problems with this theory, and you can read them about it last month's post debunking this topic.
An interesting aspect of the FUD around a deadly bitcoin extraction spiral is that it was promoted by Bitcoin Cash (Bitcash) supporters altcoin a few months after its launch. The idea was that Bitcash (BCH) would attract so many miners away from Bitcoin that this deadly spiraling scenario, once theoretical, took place in the real world.
This spiral of death has never occurred, but now there are indications that Bitcash can face a different kind of spiral of death in 2019.
A 51% Attack lesson on Ethereum Classic
Recently, creator of Litecoin Charlie Lee discussed Attacks of 51% with Laura Shin about her Podcast not confirmed due to Double-spends on the Ethereum Classic network from the beginning of this month. One of the key points that Lee spoke about during this interview is that it is important not to be a minority currency for a specific hashing algorithm.
Crypto Asset Network they use proof-of-work (PoW) because their mechanism for reaching consensus on transaction ordering chooses a specific algorithm for the mining process. ASIC mining hardware it is built thinking about these algorithms, not necessarily a specific currency. This means that the hardware can be used on multiple networks using the same hashing algorithm.
The danger here is that some encrypted asset networks are much larger than others, which endangers the smaller ones. This was evident with the recent attacks on the Ethereum Classic network. While Ethereum and Ethereum Classic use the same hashing algorithm, the Ethereum Classic network has only 5% of the computing power level of the Ethereum network, according to BitInfoCharts.
"Being the dominant currency in the mining algorithm is important because miners who own the mining machines will not attack a coin and kill their hen from the gold eggs," explained Lee in his recent chat with Shin. . "If you attack Litecoin, if you have 51% scrypt ASIC and use it to attack Litecoin and kill Litecoin, so basically make sure that all your mining hardware is useless because it can not really make a lot of money with the extraction of something else. "
Ethereum miners are able to attack the Ethereum Classic chain without much concern because they will still be able to extract the Ethereum chain once the attack is over. In other words, miners can always resort to the dominant chain. This alters the incentives associated with PoW-based cryptographic asset networks.
"The idea behind Nakamoto's consensus is that miners will have no incentive to attack the currency because they will destroy their investment," added Lee in his conversation with Shin. "They will only make more money in the mine normally, but they will break when your currency is like 5% or 2% of the total [total hashrate for a particular algorithm] and you can simply rent it easily. Then there are incentives to attack that coin. "
How can Bitcoin cash be considered safe?
With all this in mind, let's take a look at the Bitcash network in relation to the Bitcoin network. Both of these networks use the SHA-256 hash algorithm, which means that the minority chain could be in trouble.
Currently, the hashrate of the Bitcash network is slightly less than 4% of the size of Bitcoin, which means that the difference here is even greater than what is seen with the Ethereum and Ethereum Classic networks.
As a side note, Bitcash also has fewer strengths than other cryptographic assets based on SHA-256 such as Namecoin and Unobtanium because of the use of these networks mining merger.
Thus, the scenario of Bitcash's death spiral is one in which trust in the reliability of the network falls while more people realize that it is not safe and susceptible to the same type of double-expense attacks that have been seen more frequently. on a variety of other altcoin networks in the last year or two. As people lose confidence in Bitcash, the price should decrease, which should reduce the network share compared to the total SHA-256. This therefore has a cascade effect with further drops in price and hashrate.
For those who think that Bitcoin and Bitcash networks are full of benevolent miners, it should be remembered GBMiners once held about 5% of the Bitcoin network hashrate. GBMiners was owned and operated by Amit Bhardwaj, who was arrested for managing a Ponzi scheme last year one CoinJournal reported for the first time in January 2017.
5% of the hashrate of the Bitcoin network today would be more than enough to conduct a 51% attack on the Bitcash network. What would Bhardwaj have decided to do with that computing power if he had control today?
But is there something of this?
There are some potential problems with Bitcash's spiral death theory.
For one, 51% previously executed attacks do not seem to have damaged targeted networks in terms of price. For example, Ethereum Classic is still in the top 20 of the cryptographic assets listed by the current capitalization, according to OnChainFX by Messari.
In addition, the Bitcash network is unique in that it has a number of ideologically driven miners willing to support the network. For example, there were entities willing to dig into the Bitcash network at a loss to defend him from a possible attack by the miners supporting Bitcoin SV in November.
Furthermore, Bitcoin ABC, which is a full node client software for the Bitcash network, has released an update which included the use of checkpoints in November. These basically guarantee that large reorganizations like those seen recently on the Ethereum Classic network are ignored by the updated nodes; However, according to BitMEX Researchit is not clear if this change will turn out to be a net positive.
It is also much more difficult to get hashing power for an attack on a SHA-256 based encryption network. In the case of Ethereum Classic and many other altcoins, the hash can simply be rented from a service like Nicehash.
Even with these counterpoints in mind, it is still clear that the security of the Bitcash network is questionable because of the Bitcoin domain in the SHA-256 hash algorithm. This does not mean that the scenario of the death spiral in Bitcash mining will occur in 2019, but there is certainly the possibility that it will occur.