In this video, I discuss the theoretical mechanics of a Bitcoin miner death spiral, and how Bitcoin's difficulty adjustment helps to guard against this possibility.
When more Bitcoin miners join the network and Bitcoin blocks are produced in under 10 minutes, the difficulty of finding the next block increases.
When Bitcoin miners leave the network and hash rate drops and block time moves over 10 minutes, the difficulty adjustment makes it easier to find the next block.
This difficulty adjustment happens every 2016 blocks and uses the previous 2016 blocks to calculate average block time.
Bitcoin's difficulty adjustment not only prevents mining Bitcoin from ever becoming too unprofitable, but it also helps to ensure a fairly constant issuance rate for new Bitcoin. It is one of Satoshi's many strokes of genius.
This mechanism was stress-tested in the summer of 2021 when China banned Bitcoin mining and 54% of the miners unplugged from the network. Bitcoin continued to work normally, in spite of this massive disruption.
Unlike other crypto, Bitcoin is designed to withstand nation-state attacks like this one.
The difficulty adjustment ensures that energy prices that are "too high or too low" will never be able to interfere with Bitcoin mining. Even if Bitcoin fell to $1, the network would adjust to incentivize Bitcoin miners to keep mining.
Not investment advice! Consult a financial advisor.
I am not being paid or otherwise compensated by any company or cryptocurrency project that I mention in my videos.
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