There's a soft failure-mode for bitcoin where due to the alternating difficulty adjustment, you could end up with people only mining every other 2016-block adjustment.

Let's call this cycle A and cycle B.

If A is too hard, miners drop out, cycle B gets easier, miners flood back, cycle A gets harder.

This results in the hard cycle getting longer and the easy cycle getting shorter.

This isn't completely critical as there is I believe a small damping effect, so it isn't completely lethal to bitcoin, but a key thing about bitcoin mining is that whether other people are mining or not doesn't actually affect your own profitiability.

Other people dropping out doesn't actually mean you get more bitcoins per hour/watt, it only affects the next difficulty adjustment as a secondary effect.

Satoshi thought of everything, man.

There is an interesting missing link in the feedback cycle with Bitcoin though - the same amount is produced regardless, supply does not contract with demand.

It's no different to a mortgage being in negative equity as the home owner would still be in debt after selling the property.

I am not certain; but, costs do not have a causative relationship to prices. Prices only go down because as the cost of production goes down, supply increases. It is a correlative relationship.

Bitcoin's supply won't increase as costs go down, unlike other assets.

It's the reverse.

As price per coin goes up, more folks will find mining profitable and invest in mining operations. Difficulty goes up until it's no longer attractive for anyone to add to the global hash rate.

As price per coin goes down, less of those operations are profitable and fewer new people will find it to be a good investment. Difficulty stays the same or goes down. Due to capital expenses, difficulty is more sticky in the downward direction than upwards.

There is of course some marginal price action in between where there is in theory selling pressure from miners when it's less profitable to mine (to fund operational expenses and debt), but I don't think it's super material to the overall market volume these days.

The mining reward isn't a direct transaction that has a price.

Competing for it is more of a game that has a cost to participate in.

Price isn't affected by mining difficulty, only the other direction.

The cost of finding a block goes down because it becomes less difficult.

The goal in proof of work is to find a block hash less than a given value. That value is determined by the network difficulty. The lower the value, the more difficult it is to find a block, and thus the more expensive it will be to mine.

Difficulty is adjusted once every two weeks to target an average block time of 10 minutes. If the average block time during the preceding 2 weeks is less than 10 minutes, it means that blocks were too easy to find (i.e. the difficulty was too low relative to total hash rate of the network). Conversely, if the average block time was greater than 10 minutes, the difficulty was too great.

This is how it the network has maintained a roughly 10 minute block time as the hash rate of the network has grown over the past 16 years. The difficulty (i.e. cost) of finding a block is constantly being adjusted.

I don't think GPUs are competitive at all. You need specialized mining rigs with bitcoin mining specialized chips.

Bitcoin is no longer mined by GPUs but by ASICs

If costs stay high, then people will drop out of bitcoin mining, which will cause supply to go down and bitcoin prices to go up.

No but if more miners leave then dofficulty with drop faster right? Its modelling supply and demand curves which are a stable equilibrium in these circumstances

> but once it does happen, the edge case collapse the entire system.

Which is when exactly, and how likely is that to happen? It hasn't happened yet in ~14 years, but I guess "never say never". There is a lot of money saying it won't happen very soon though.

I don't think you know what you're talking about. If the difficulty lowers at a lower rate than miners leaving then the difficulty rate will stop dropping.

> below miner leaving rates.

What does this mean, sorry?

> the edge case collapse the entire system.

If you mean that if it reaches a certain point, the entire system will collapse, it means you don't understand the difficulty adjustment. If it's too expensive to mine, then some miners leave, which makes blocktimes be longer, but not to worry because the consequence of that it just that difficulty will go down, which means that you need less hashrate to mine (and maybe some of those miners that leave will come back because it is profitable again for them). This means that it is essentially impossible for all miners to leave at the same time; some of them stay even if at a loss, and some of them are just hobbyists that can already feed their miners with solar power (so there's really no loss for them in leaving them connected).

Yup

The problem with BTC going down is that it's a double whammy of not only BTC going down but also the cost of its shovels going up

Before: BTC pays $100k but a shovel costs $300

Now: BTC pays $70k but a shovel costs $$??

Bitcoin asked the right questions but came back with the wrong answers

> if you do not run your gpus

Bitcoin hasn't been viably mineable on GPUs for over ten years. It requires specialized hardware.

As such, mining is typically restricted to those with massive capital investment in a single-purpose, so you really won't see random offloading and onloading of that capacity. As long as it's marginally profitable (with capital investment being a sunk cost, this is the price where it's more than ongoing costs), those miners will keep their machines running.

The original idea was for every single person out there to mine bitcoins on their own computers. Bitcoin screwed that up by allowing big corporations to push out the smaller players. Their big purpose built hardware increased mining difficulty to the point mere mortals need not even apply. Mining on GPUs? Nope, you need purpose built ASICs for this.

Monero is the only cryptocurrency today that's at least trying to implement the original "one CPU, one vote" vision but nobody really cares about it since number doesn't go up.

Turn off their mining rigs.

Stop mining.

...and sitting on a lot of ASICs which are soon worthless....

"stop"

(Obviously the equipment doesn't go away. You can start it again. But if you can't make a buck doing something, you won't do it.)

Counterintuitively that’s the definition of healthy in economics.

If you don’t have busts, at some point your system will abruptly/violently cease to exist.

This is exactly how real world economy is (ideally) meant to work.

It is a negative feedback loop, so yes, it makes systems stable.

Regression to the mean. The alternative is no adjustment at all.