One metric is far more significant to bitcoin users than its price

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Written by
Obsession

Bitcoin&rsquo,s price fell overheen the weekend&mdash,while the price of an offshoot, bitcoin contant, soared. The rally ter bitcoin specie wasgoed so bullish that it even shortly surpassed another cryptocurrency, ethereum, ter total market value, at $29.9 billion.

While the bitcoin and bitcoin metselspecie price activity is arousing, investors te either would do well to pay attention to another critical metric: the amount of computational power committed to mining each digital coin, also known spil the hash rate. A steep and prolonged druppel ter bitcoin&rsquo,s hash rate could set off a much-feared &ldquo,chain death spiral&rdquo, that could render the bitcoin network worthless. Bitcoin showcased signs of its potential for triggering this dynamic overheen the weekend, when its hash rate fell by 50%.

How does a death spiral work? The bitcoin network presently adds a fresh bundle of transactions, known spil a &ldquo,block,&rdquo, harshly every Ten minutes. The precies time is determined by how long it takes for a bitcoin miner to process a block of transactions. This, te turn, is set by something called the &ldquo,difficulty&rdquo, on the bitcoin network. Difficulty automatically adjusts itself to match the hash rate so that transactions won&rsquo,t take too long.

But bitcoin&rsquo,s difficulty only adjusts every Two,016 blocks, or harshly every two weeks. So if the hash rate abruptly plummets, the difficulty could be rendered too high for the amount of processing power on the network. This te turn could mean severe delays ter completing bitcoin transactions. Spil transactions begin getting delayed, the network&rsquo,s utility is diminished and investors could embark dumping bitcoins, causing the price to druppel. Miners, ter turn, could embark mining other coins because a lower bitcoin price means mining is less profitable.

And so the cycle would proceed, with investors and miners abandoning bitcoin, causing greater delays ter transaction times, and preventing a difficulty adjustment from happening quickly enough to pauze the cycle. &ldquo,Transactions get backlogged to a point where the coin becomes basically futile,&rdquo, says Peter Kim, who co-founded a developer implement called Nitrous and is now working on an app for the cryptocurrency markets.

Think the death-spiral script sounds far-fetched? It came close to happening overheen the weekend. Bitcoin&rsquo,s hash rate fell by 50% overheen two days spil miners switched their machines from bitcoin to bitcoin metselspecie, because it wasgoed more profitable to do so. The druppel ter the hash rate meant that the average time taken to accomplish a bitcoin transaction doubled from Ten minutes to 20 minutes or more, according to bitcoin analyst Jimmy Song. This coincided with a more than 20% crash ter bitcoin&rsquo,s price. &ldquo,Bitcoin contant wasgoed up to 100% more profitable to mine because of the price run-up,&rdquo, Song says.

Ironically, bitcoin wasgoed saved by bitcoin specie&rsquo,s own difficulty increases. The algorithm governing difficulty adjustments on bitcoin metselspecie caused a surge ter the difficulty, making the coin less profitable to mine. The bitcoin metselspecie people didn&rsquo,t want volatile hash rates te their cryptocurrency, so they switched the protocol&rsquo,s difficulty adjustment rules on Nov. 13. By this time, many miners had already switched their hash power back to bitcoin.

According to the hash rate monitor at Fork.lol, bitcoin&rsquo,s hash rate has recovered to about 20 percentage points from where it wasgoed before it crashed. Bitcoin&rsquo,s hash rate is once again well above that of bitcoin specie. A death spiral wasgoed averted.

Bitcoin and bitcoin metselspecie&rsquo,s dueling hash rates. (Fork.lol)

Bitcoin watchers don&rsquo,t expect to see the last of this sort of volatility ter hash rate. &ldquo,When it&rsquo,s more profitable to mine [bitcoin metselspecie], miners will go there. When it&rsquo,s more profitable to mine [bitcoin], like right now, miners will go there,&rdquo, Song said.

Which means the threat of a death spiral for either digital currency can&rsquo,t everzwijn be written off.

Correction: An earlier version of this article said a bitcoin-cash hard fork led to miners switching their hash rate to bitcoin, ter fact it wasgoed bitcoin specie&rsquo,s difficulty adjustment that caused a surge ter difficulty, causing miners to switch.

Related movie: Litecoin Mining with L3+ Antminer Profitable? | Cryptocurrency Mining!


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