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Bitcoin skeptics predict that the Bitcoin systemwill collapse once mining ends. Bitcoin miners receive new coins andtransaction fees, but if mining ends while transaction fees remain minimal,miners will have no income and fall into a "death spiral." The next 6to 7 halvings, new coins are expected to decrease to less than 0.1 BTC.
First,explain what a "death spiral" is, and then discuss why the Bitcoinsystem might not fall into a death spiral even when new coin rewards diminishby using ② the supply and demand aspects occurring outside the Bitcoin system,and ③ the difficulty adjustment within the Bitcoin system.
Bitcoin skeptics predict that the Bitcoin systemwill collapse once mining ends. Bitcoin miners receive new coins andtransaction fees, but if mining ends while transaction fees remain minimal,miners will have no income and fall into a "death spiral." The next 6to 7 halvings, new coins are expected to decrease to less than 0.1 BTC.
First,explain what a "death spiral" is, and then discuss why the Bitcoinsystem might not fall into a death spiral even when new coin rewards diminishby using ② the supply and demand aspects occurring outside the Bitcoin system,and ③ the difficulty adjustment within the Bitcoin system.
Mining strengthens the Bitcoin system and enhances its security.It acts as a defense device, like thickening the walls of a safe to prevent itfrom being stolen. Skeptics argue that when mining ends, miners will leave dueto reduced profits which make the security weaken. It also makes the price ofBitcoin drop, then more miners will leave and continue this vicious cycle knownas the "death spiral."
Considering the net inflow and outflow of capital from externalsources, some people sell Bitcoin to exit, while others buy Bitcoin to enterthe ecosystem. Even if the continuous inflow of capital decreases slightly, ithas resilience because transaction fees continue to occur, which can partiallycover electricity costs and mining facility operating expenses. Additionally,Bitcoin mining has already become industrialized, meaning that miningfacilities does not shut down immediately when Bitcoin prices drop, nor theycan enter the market immediately when the price rises.
It isalso important to note that when Bitcoin prices fall, there are buying forcesmoving in the opposite direction. Furthermore, since mining difficulty isdesigned to adjust periodically, if Bitcoin prices drop and miners leave, themining output for the remaining miners increases. To give an analogy with areservoir, Bitcoin already has sufficient reserves and the system can adjustthe outflow which makes the likelihood of a death spiral low.