How Close Is Bitcoin to Experiencing the “Death Spiral”?

Bitcoin price suffered a serious drop in the past week. Events such as the shutdown of SegWit2x and the “pump&dump” of Bitcoin Cash have worn out Bitcoin investors.. However, it is necessary to put aside the price of Bitcoin, the increases or decreases it has experienced, because Bitcoin may have a very serious ‘fundamental problem’ at the moment.. These catastrophic bells started ringing when the hash rate fell in half.

It wouldn’t be good for Bitcoin if Bitcoin is starting to have technical problems right now.. In particular, the reason for the decline is due to the increase in Bitcoin Cash, which has been disconnected from the network due to certain shortcomings in the Bitcoin network.. As you know, Bitcoin Cash price broke a record a few days ago, reaching the level of $ 2,500.. However, the current situation is not related to the price of Bitcoin or Bitcoin Cash.. The real thing is that Bitcoin Cash has taken a very serious hash rate from Bitcoin.

The biggest threat of Bitcoin losing so many hash rates is that it will trigger a ‘death spiral’.. On a market basis, many believe there is nothing that can stop Bitcoin.. But that’s just the tip of the iceberg. Looking underneath, things are much more fragile than they seem.

The Spiral of Death

In early 2010, an Argentine entrepreneur named Wences Casares began researching Bitcoin.. He thought it was too good to be true that Bitcoin was “decentralized”, “not managed by someone”.. According to Casares, there must have been a security flaw in the Bitcoin network, and he hired two security teams to prove it.. He paid these teams $500,000 and asked them to hack Bitcoin. A few months later, these teams told Casares that they couldn’t hack the Bitcoin network, their software was very good.. With a little research, you can see that Wances Casares is now one of the staunchest supporters of Bitcoin.

Even in 2010, the Bitcoin network could not be hacked and it still continues.. Bitcoin has not faced any successful hacking attacks so far. Unfortunately, the same cannot be said for Bitcoin exchanges.

On August 1, 2017, a fork occurred in the Bitcoin network and a separate network emerged: Bitcoin Cash.. Some say Bitcoin Cash is closer to the system Satoshi Nakamoto wanted to install than the original Bitcoin today.. After this fork, the network we now know as Bitcoin remained the “main Bitcoin” because the majority of developers and miners supported this network.

This is exactly the weakness of Bitcoin after the fork on August 1, 2017. output. This weakness is not an external threat. In other words, the Bitcoin network is not vulnerable to hacking attacks or any outside attack.. On the contrary, the weakness in the Bitcoin network lies within Bitcoin itself.

A stack of transactions we call a “block” is now added to the Bitcoin network almost every 10 minutes.. We say almost 10 minutes because this time can vary depending on how quickly miners can process a block of transactions.. This is determined by what is called the “difficulty” in the network.

To ensure that transactions do not wait too long, the difficulty in the network automatically adjusts itself according to the hash rate on the network.. But right now the network difficulty adjusts itself every two weeks. In other words, if the hash rate on the network drops suddenly, the difficulty level in the network may be too high compared to the processing power of the network.. As a result of this situation, it can take a very, very long time for Bitcoin transactions to be approved.

This situation started to be mentioned by many people, especially at the end of last week.. The so-called Death Spike begins when the delays on the Bitcoin network become unbearable and investors decide to sell their Bitcoins.. As a result, the Bitcoin price naturally drops, miners do not earn enough profits while mining Bitcoin, and eventually everyone leaves Bitcoin.

Nitrous co-founder Peter Kim sums it up briefly:

“So many transactions have accumulated in Bitcoin that Bitcoin is now seen as ‘unnecessary’.”

Might Sound Like a Sci-Fi Novel

People who pay all their attention to the price of Bitcoin, people who care about the slightest increase or decrease in Bitcoin, unfortunately, do not see some of the underlying things of the Bitcoin network.. It may sound like an exaggeration, but the bells of disaster did indeed ring for Bitcoin.

Bitcoin transactions slowed over the weekend. The fact that the price of Bitcoin Cash took off and it became more profitable for miners also made the situation difficult because miners switched to Bitcoin Cash. Therefore, Bitcoin’s hash rate has halved.

As a result of this drop, transaction times have at least doubled.. Analyst Jimmy Song explained how much more attractive Bitcoin Cash has become to miners as a result:. If mining Bitcoin Cash is more profitable, miners go there. If mining Bitcoin is more profitable, as it is now, miners will go there.”

Breaking the Crisis

The drop in hash rate was short-lived and would quickly drop and pick itself up.. When we look at the hash rate graph, we see that Bitcoin managed to collect itself before the crisis started.. However, it still has a lower hash rate than before Bitcoin Cash’s price increased.

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