Bitcoin’s halvings (BTC) are a bit creepy, a bit like the witching hour, and one of the prophecies being whispered last week was something about a „Death Spiral“ on the Bitcoin Network. This idea, which is not really new, involves a mass exodus of BTC miners, whose work to create new parts of the Blockchain, due to the reduction of its rewards.
As most recently exposed by Zach Resnick, managing partner of the venture capital firm Unbounded Capital and a leading supporter of Bitcoin SV (BSV), and summarized by Cointelegraph:
„As halving cuts the block’s reward, a large number of miners will leave the network. As the network hash rate decreases, the block generation time increases, the network becomes congested. This, in turn, makes Bitcoin less attractive, as participants don’t want to wait forever for their transactions to be processed. This leads to a drop in Bitcoin price, which pushes more miners off the network. This process is repeated until the network dies.
On May 11 and 12, he halved the miners‘ reward from 12.5 BTC to 6.25 BTC and went in and out without any calamity, of course. But some of Resnick’s predictions of market behavior – falling hash rates, rising transaction rates, longer block time and a congested mempool – were still evident a week after the event. Perhaps there was some truth to the „death spiral“ hypothesis?
It’s just business… As usual
Christopher Bendiksen, the head of research for asset manager Coinshares, told Cointelegraph: „Lower hash rates, increased block generation times and, in the absence of any immediate exogenous fall in transaction demand, increased pressure on commissions, are well-known effects of mining reward falls.
Moreover, this has happened „on a significant scale“ before, on Black Thursday, March 12, 2020, for example, when the price of BTC fell dramatically, which was fed by fears of the coronavirus. The miners are paid in Bitcoin; therefore, when the market price of BTC falls by 50%, so does their block reward. „Another great example is November 2018“ – when Bitcoin fell below $4,000, after losing almost a third of its value in a week. There were no death spirals in either case.
The miners‘ earnings are falling, but this has always coincided with a rise in the price of Bitcoin
Are the miners in trouble?
Resnick isn’t the first to predict a death spiral. Santa Clara University finance professor Atulya Sarin wrote about it in December 2018, shortly after the sharp fall of BTC in November. The miners‘ work in registering and confirming new operations in the publicly distributed database – the Blockchain – is crucial. Sarin explained, „Bitcoin is, after all, a set of encrypted numbers that cannot establish ownership of anything – Bitcoin will be worthless.
„The miners are a critical piece of the how does Bitcoin Billionaire pay dividends, Bitcoin Trader zero day, crypto exchanges like Bitcoin Revolution, Bitcoin Evolution minimum trading amount, The News Spy to add 0x, Bitcoin Code wallet review reddit, buy bitcoins with paypal Bitcoin Profit, Bitcoin Era bitcoin cash news, revolut to Immediate Edge, link wallet to Bitcoin Circuit puzzle,“ Sarin told Cointelegraph this week. „And halving the hash rate has led many of them to bankruptcy – the revenue they generate from mining Bitcoins and the transaction fees are less than the cost of operations to them.
However, this argument has not gone unanswered. Gerald Dwyer, a Clemson University professor and BB&T academic, argued that he does not give proper credit to Bitcoin’s transaction fees – the second reward for miners on top of the block reward. When asked about this commission supplement, Sarin told Cointelegraph:
„While it is correct that increases in transaction costs can be a source of additional income, as Professor Dwyer suggests, there is a limit, to which the transaction cost can increase, beyond which it is no longer commercially viable to have Bitcoin transactions.“