Is current bitcoin price dangerous for miners and blockchain?
Recently the price of Bitcoin reached the lowest level in 2018 – below $4000. Many people started panicking and as a result selling off. Not only those who invested in Bitcoin by buying it on cryptocurrency exchanges like Linkkoin, but as well those, who had been mining cryptocurrencies.
Many PC gamers remember that in 2017 buying a GPU was either impossible or horribly expensive because of cryptocurrency miners. Due to the costs of electricity, most of the mining companies opened/moved to China. Right now many small miners shut down they facilities. This applies in most cases to the companies, which started operating in 2018, which had missed last year profits.
While the big companies can wait for the downtrend to end (because they can cannibalise some of the revenues from 2017), the small ones do not have such comfort. Still, does it mean the cryptocurrency mining and cryptocurrencies are dead?
Not at all. We had such situation in 2014, when as well we had a very strong downtrend. And then we had reversion of a trend two years later.
What impact on Bitcoin price does decrease in number of miners mean?
First of all, the smaller amount of miners means the rate of mining goes down – less BTC is mined (it takes longer to mine it). And usually, limited supply means the price is expected to rise at some moment. As well some big mining companies can increase their market shares by buying out ex competitor equipment and facilities, or move to a country with much lower fees or change mining rigs into more effective and energy saving models (one should remember, that the cost of mining is not just electricty, but as well facilities, including rental of premises etc.).
What may seem more like a challenge is a risk of attack because of one entity having majority of hash power. In such case, depending from the form of attack, possible targets are usually sellers or miners. In many cases we already have a set of countermeasures. One of them is of course to provide a proper observation, so then the reaction to a threat is immediate. As well, for the most of possible scenarios, we already have solutions implemented in the Bitcoin blockchain itself.
Although Bitcoin has the biggest mining pool among cryptocurrencies, few years ago, with the prior downtrend there was a case, when one entity owned over 50% of the total mining pool for Bitcoin. What was the outcome of that situation? The company voluntarily limited it's participation below 40%.
The only remaining scenarios, highly doubtable to happen (or becoming totally ineffective beside temporary effects) would be:
- A new entity to open its own new several big facilities, what would cost way over a billion USD and probably will have only temporary effect on Bitcoin price.
- As most of the mining facilities now are located in China, the Chinese government is technically capable of issuing the attack order. Here the question is for what purpose the Chinese government would decide to do so? It had already been proven that the facilities running in the poorest regions of China give benefits to the local communities (as they pay local taxes and therefore help in developing those areas). And the Chinese authorities are not known as ones to kill the goose that lays the golden egg.
To sum up, the current situation regarding mining and and cryptocurrencies is not very comfortable. Still, we have already been in such situation couple of years ago. Bitcoin and miners survived it, and new generations of advanced mining rigs had been introduced. As well bitcoin as a deflationary currency has number of security solutions implemented, so then even if the temporary number of miners goes down, it would not be a threat for existence of Bitcoin.