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Bitcoin [BTC] “going to 0” because of death spiral phenomenon allows for the appreciation of mining difficulty adjustments

Anirudh VK



Bitcoin [BTC] "going to 0" because of death spiral phenomenon allows for the appreciation of mining difficulty adjustments
Source: Unsplash

Opinion: Bitcoin [BTC] has long been hated by economists, as they believe that it is nothing more than a bubble. Now, in the depths of a rough bear market and declining hashrate, they have resorted to predicting the death spiral of the coin, with one professor of finance saying that it would be due to miners leaving the ecosystem.

Atulya Sarin, the professor in question, teaches at Santa Clara University and has written on currencies in a book known as “Foundations of Multinational Financial Management”. However, he also seems to hold a position as a naysayer of Bitcoin, with articles both last April and recently speaking about how it is headed towards a spiral of death due to the reduction of its price below the cost of its mining.

He stated in his article:

““As I argued, once Bitcoin’s price falls below its cost of mining, the incentive to mine will deteriorate, thrusting bitcoin into a death spiral…Bitcoin has no cash flows. In that respect, it is more like gold, in that its value is driven to some extent by its desirability and potential uses, but mostly by its cost of mining.”

However, Sarin fails to notice that the difficulty of mining on Bitcoin adjusts itself every 2016 blocks. This translates to about 2 weeks if the blocks are produced at Bitcoin’s usual rate of one block every ten minutes. This effectively absorbs any significant changes in the price, without considering that miners operate across a margin of profitability.

A higher mining difficulty would mean that it is more difficult to find blocks, and is deployed whenever the hashrate on the network increases. The opposite also occurs when the hashrate decreases, it becomes easier to find blocks on the chain.

Moreover, while the price of Bitcoin treats the all-in cost of mining as a floor, which was recently broken at around $6000, it is not a determiner of the value of the network. Granted, the price of the coin is mostly derived from speculative trading. The value of the network instead lies in its use-case: a decentralized, permissionless, trustless and uncensorable payments system.

Sarin also picks on the current buyers and miners of the Bitcoin platform, stating that they have been “run-of-the-mill, greed-driven investors”. While that may hold true for the miners which have now become huge operations driven by corporations, the spirit of what drove the coin is still alive. In a bear market where most buyers are down, orders of magnitude from what they invested in, strides continue to be made in the sentiment of the space even as weak hands capitulate.

Chanting the common economist’s mantra, Sarin predicts that Bitcoin was going to go to zero. His logic is as follows:

“However, the number of miners cannot fall below a certain level, because without the miners providing the computing power to maintain the ledger, the bitcoin blockchain will not remain viable…If the price continues to drop and the cost of mining does not fall correspondingly (the cost of mining will algorithmically decrease, but not necessarily to same extent as the decline in prices), Bitcoin will quickly go to zero.”

The fatal flaw in his arguments is present here as well, as profit margins for miners currently ranging from over 50% to being slightly unprofitable. As mentioned previously, most miners are now run by corporations,and can withstand a huge shock loss. However, as unprofitable miners leave the network, the rest of the network’s difficulty accordingly adjusted to be more profitable for the ones that stay on.

Sarin also states that this is different from previous drops in difficulty, as the recent decline “dwarfs the magnitudes of past declines”. This should not be a matter of concern, and instead can be looked at as a way to appreciate the beauty of the dynamic difficulty changes of the Bitcoin network.

While it is easy to say that Bitcoin is headed towards zero due to it’s nature as a speculative trading asset, the fact remains that the world has seen nothing similar to Bitcoin. It effectively reinvents the concept of money, something that the world has run on.

Something that has built society into the giant it is today, and allows centralized institutions to enforce the need of trust in everyday lives of everyday people. This has effectively been disrupted to allow money to be accessible to everyone without permission. Therefore, as long as there exist two individuals in the world that seek the freedom of money and the value that they create, Bitcoin will not go to zero.

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Anirudh VK is a full-time journalist at AMBCrypto. He has a passion for writing and interest towards the future of blockchain technology and cryptocurrencies. He does not own any cryptocurrencies currently.

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    December 7, 2018 at 10:12 PM

    The threat to bitcoin is not that it will not have enough miners for it to function. That may be the final death blow, but that would only occur after the real value had dropped to nearly zero already. The real threat would be if people stopped wanting to hold bitcoins. Ultimately, I agree that it is going to zero, but not for the reason cited. It will go to zero for the same reason that a poker chip to a long shut down casino is only worth its value as a collector’s item. It’s old value was only based on its ability to be transferred to dollars and the people that used to accept it as a dollar proxy don’t want it anymore.

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Bitcoin [BTC] will be vulnerable to quantum computing if we’re not prepared, says Andrew Poelstra

Biraajmaan Tamuly



Bitcoin will be vulnerable to Quantum Computing without preparation, indicates Blockstream Researcher
Source: Pixabay

Security is an important aspect of every crypto-asset and Bitcoin [BTC] is often dragged into debates on whether the blockchain is protected from hacks or vulnerable to certain technological developments.

In a recent episode of whatbitcoindid, Andrew Poelstra, the Lead Researcher at Blockstream, was asked about whether Quantum Computing was a genuine threat to the existence of some Bitcoin on the current blockchain.

Poelstra indicated that the threat was evident, but it was still a long way off from being practical in the current technological field. He mentioned that he expected quantum computing to come into play against the security of Bitcoin in “maybe less than 15 years” and said that he would be really surprised if “it was less than 25 years”.

Poelstra said that it was necessary to take actions in the current scenario for post-quantum systems because he believed that without any preparation for the impending technological aspect, it did not matter how the future rested. Without preparation, the community was going to be blindsided, he said.

He stated,

“It’s important now that we started working on standardization and exploring ideas and exploring what Bitcoin is going to look like in a post quantum world but in the current scenarios there were no candidates for post quantum schemes that would be reasonable to deploy them in a Bitcoin.”

The introduction of quantum computing in the cryptocurrency scenario was a topic which was widely debated among other personalities in the community as well. Mati Greenspan, a prominent eToro Analyst, had started earlier this year that the threat only existed to Bitcoin if quantum computing was available to only one person.

If people or users collectively upgraded to quantum computers, then the Bitcoin miners would upgrade among themselves to protect it from an alleged 99% attack, which is possible with a quantum computer.

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