The Bitcoin Cash Mining Death Spiral Scenario


The idea of a bitcoin mining dying spiral has been round for a few years. The fundamental thought is a lot of bitcoin miners might cease mining at practically the identical time as a result of their exercise is not worthwhile. Due to the best way the Bitcoin protocol works, this might theoretically grind the community to a halt. Faith within the Bitcoin community would then collapse, that means the value would additionally fall, which might result in much more miners leaving the community. These two suggestions mechanisms would then construct off one another as the value continued to spiral in direction of zero.

There are quite a lot of points with this concept, and you’ll examine them in last month’s post debunking this argument.

One fascinating side of the FUD round a bitcoin mining dying spiral is that it was promoted by supporters of the Bitcoin Cash (Bitcash) altcoin a number of months after its launch. The thought was Bitcash (BCH) was going to draw so many miners away from Bitcoin that it could trigger this once-theoretical dying spiral situation to happen in the true world.

This mining dying spiral by no means got here to cross, however now there are indications that Bitcash might face a distinct kind of mining dying spiral in 2019.

A Lesson from the 51% Attack on Ethereum Classic

Recently, Litecoin creator Charlie Lee mentioned 51% attacks with Laura Shin on her Unconfirmed podcast as a result of double-spends on the Ethereum Classic network from earlier this month. One of the important thing factors Lee mentioned throughout this interview was that it’s vital to not be a minority coin for a selected hashing algorithm.

Crypto asset networks that use proof-of-work (PoW) as their mechanism for reaching consensus on transaction ordering select a selected algorithm for the mining course of. ASIC mining hardware is constructed for these algorithms in thoughts, not essentially a selected coin. This means the {hardware} can be utilized on a number of networks that use the identical hashing algorithm.

The hazard right here is that some crypto asset networks are a lot bigger than others, which places the smaller ones in peril. This was evident with the latest assaults on the Ethereum Classic community. While Ethereum and Ethereum Classic use the identical hashing algorithm, the Ethereum Classic community solely has round 5% of the Ethereum community’s degree of computing energy, according to BitInfoCharts.

“Being the dominant coin in the mining algorithm is important because the miners that own the mining machines will not attack a coin and kill their goose that lays the golden egg,” defined Lee in his latest chat with Shin. “If you assault Litecoin — when you have 51% of all Scrypt ASICs and use it to assault Litecoin and also you kill Litecoin, then you definately mainly make all of your mining {hardware} ineffective as a result of it could’t actually make a lot cash from mining one thing else.”

Ethereum miners are in a position to assault the Ethereum Classic chain with out an excessive amount of fear as a result of they’ll nonetheless be capable of mine the Ethereum chain as soon as the assault is over. In different phrases, miners can all the time fall again on the dominant chain. This skews the incentives related to PoW-based crypto asset networks.

“The idea behind Nakamoto Consensus is miners will not have incentives to attack the coin because it will destroy their investment,” added Lee in his dialog with Shin. “They’ll make more money just mining normally, but that breaks down when your coin is like 5% or 2% of the [total hashrate for a particular algorithm] and you can just rent it out easily. Then there are incentives to attack that coin.”

How Can Bitcoin Cash Be Seen as Secure?

With all of this in thoughts, let’s check out the Bitcash community in relation to the Bitcoin community. Both of those networks use the SHA-256 hashing algorithm, which implies the minority chain may very well be in hassle.

Currently, Bitcash’s community hashrate is rather less than 4% the scale of Bitcoin’s, which implies the distinction right here is even bigger than what’s seen with the Ethereum and Ethereum Classic networks.

As a facet notice, Bitcash additionally has much less hashpower than another SHA-256-based crypto property akin to Namecoin and Unobtanium resulting from these networks’ use of merged mining.

So, the Bitcash mining dying spiral situation is one the place religion within the reliability of the community falls as extra folks understand it’s not safe and vulnerable to the identical kinds of double-spending assaults which were seen extra continuously on quite a lot of different altcoin networks over the previous 12 months or two. As folks lose religion in Bitcash, the value ought to fall, which ought to decrease the community’s share of the whole SHA-256 hashrate additional. This then has a cascading impact with additional drops in worth and hashrate.

For those that assume the Bitcoin and Bitcash networks are crammed with benevolent miners, it needs to be remembered that GBMiners once held around 5% of the Bitcoin network hashrate. GBMiners was owned and operated by Amit Bhardwaj, who last year was arrested for operating a Ponzi scheme that CoinJournal first reported on in January 2017.

5% of Bitcoin’s community hashrate right this moment could be greater than sufficient to conduct a 51% assault on the Bitcash community. What would Bhardwaj determine to do with that computing energy if he had been answerable for it right this moment?

But Does Any of This Matter?

There are a number of potential points with the Bitcash mining dying spiral concept.

For one, beforehand executed 51% assaults don’t seem to have harmed the focused networks when it comes to worth all that a lot. For instance, Ethereum Classic remains to be within the high 20 crypto property listed by present market cap, according to Messari’s OnChainFX.

Additionally, the Bitcash community is exclusive in that it has a lot of ideologically-driven miners prepared to assist the community. For instance, there were entitites willing to mine on the Bitcash network at a loss in an effort to defend it in opposition to a doable assault from Bitcoin SV-supporting miners again in November.

Additionally, Bitcoin ABC, which is a full node software program consumer for the Bitcash community, released an update that included the usage of checkpoints again in November. These mainly make sure that massive reorganizations like what was lately seen on the Ethereum Classic community are ignored by upgraded nodes; nevertheless, according to BitMEX Research, it’s unclear if this variation will become a internet constructive.

It’s additionally far more tough to acquire hashing energy for an assault on a SHA-256-based crypto asset community. In the case of Ethereum Classic and plenty of different altcoins, the hashpower can simply be rented from a service like Nicehash.

Even with these counterpoints in thoughts, it’s nonetheless clear that the safety of the Bitcash community is questionable resulting from Bitcoin’s dominance of the SHA-256 hashing algorithm. This is to not say the Bitcash mining dying spiral situation will play out in 2019, however the potential of it occurring definitely exists.





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