Why bitcoin — by design — won’t become worthless, according to this crypto heavyweight

Bitcoin protocol is set up to be adjusted as mining conditions worsen, says teaching fellow Andreas Antonopoulos

 

As bitcoin flounders to its lowest level in 14 months, concerns over mining profitability have some wondering if the best-known cryptocurrency is headed for a hard landing as those solving the complicated puzzles hit the off-switch on their energy-guzzling mining equipment.

The price of a single bitcoin BTCUSD, -6.17%  has fallen 75% in 2018 and is down more than 80% from its all-time high.


However, according to some crypto heavyweights, mining profitability is far from a concern, all thanks to a household bitcoin name: Satoshi Nakamoto.

Satoshi, the pseudonym given to the creator of bitcoin, drew up the protocol so that after every 2,016 blocks are mined, the difficulty rate can be adjusted, or retargeted, given the current state of mining. According to Andreas Antonopoulos, tech entrepreneur and teaching fellow at the University of Nicosia, this should actually incentivize miners to ride out the selloffs.

“If they [miners] wait until the difficulty retargets and the difficulty becomes less, then each miner who waits makes more profit because in the new scheme they have a greater percentage of the mining power than they did before,” he said in a YouTube interview. “Let’s say if the mining power drops by 50%, the miners who stick around and wait for the difficulty to retarget are now twice as profitable after the retargeting... that’s a pretty good incentive to stick around.”
Blockchain
Bitcoin difficulty

Read: Here’s how much it costs to mine a single bitcoin in your country

Furthermore, bitcoin bugs note that the difficulty rate has been reduced at the last three retargets and the most recent reduction was the second largest on record.

The video of Antonopoulos followed a MarketWatch article by Atulya Sarin, professor of finance at Santa Clara University. Sarin suggested bitcoin was at risk of entering a death spiral, which occurs when the cost to mine a bitcoin is greater than the value of the bitcoin itself. That presumably prompts miners to flee. While the hash rate—the amount of computing power required to mine a bitcoin—decreases, Sarin said the cost of mining does not necessarily fall in line with the price of bitcoin, causing a spiral.

Despite some push back, evidence suggests all is not well for the mining community. On Nov. 19, bitcoin mining giant Giga Watt filed for bankruptcy. According to court documents, the company said it is “insolvent and unable to pay its debts when due,” and earlier in the month, Hong Kong-based BTCC Pool Limited said it is shutting down its mining pool business.

Elsewhere, Canaan Creative, the second largest bitcoin mining company held a flash sale on mining equipment in late November, telling Coin Desk they had “concerns people were turning off machines and smaller guys were getting out of the market and that everyone is sitting and waiting.”

Nevertheless, the bitcoin crew aren’t buying it. They say the current drawdown is no different from any other and the best-known cryptocurrency is here to stay.

“Bitcoin has been through these major declines and bear markets before. It is an anti-fragile asset. The system is designed in a way that allows for course corrections, in both directions, based on market conditions,” said Anthony Pompliano, the founder and partner at Morgan Creek Digital. “Simply, bitcoin was designed to survive.”