What Is the Concept of “Mining Death Spiral” in Cryptocurrency?
A mining death spiral is a theoretical scenario where a rapid and sustained drop in a cryptocurrency's price causes many miners to shut down their operations. This sharp reduction in the network hash rate leads to a significant increase in the time between blocks because the difficulty is too high.
If the difficulty adjustment mechanism is slow, the network can become unusable, further driving down the price and creating a vicious cycle.
Glossar
Difficulty Adjustment Mechanism
Algorithm ⎊ The core of a Difficulty Adjustment Mechanism (DAM) within cryptocurrency networks, particularly proof-of-work systems, is a dynamically adjusting function designed to maintain a consistent block generation rate irrespective of fluctuating computational power.
Mining Death Spiral
Mechanism ⎊ The Mining Death Spiral is a theoretical, self-reinforcing negative feedback loop initiated by a severe cryptocurrency price drop that pushes a significant portion of the network's hash rate below its marginal cost of production.
Network Hash Rate
Security ⎊ Network hash rate represents the computational power dedicated to a proof-of-work blockchain, directly influencing the cost and feasibility of malicious attacks.
Death Spiral
Trigger ⎊ A death spiral, within cryptocurrency derivatives, often initiates with substantial leveraged positions encountering adverse price movement.