August 19, 2020
This past May, bitcoin price has grown over 40% since its assets halved. The market braced for the miner “death spiral” caused by the sudden replication of the cost of manufacturing each BTC, but it never arrived.
Data shows that rising Bitcoin fees might have been accountable, at least in part, for avoiding the miner death spiral from the cryptocurrency’s previous splitting.
BTC Mining Blockchain Backbone is Getting Healthier
Satoshi Nakamoto established the proof-of-work agreement algorithm that powers the first-ever cryptocurrency. This guarantees that Bitcoin required no third-party or intermediary to authenticate transactions and keep the network protected.
An incentive mechanism was designed that unlocks more BTC with each block generation to have miners attracted and pour energy into powering the network.
At the start of 2020, each block confirmed earned miners a reward of 12.5 BTC. While the cryptocurrency’s built-in deflationary mechanism further decreases this supply roughly every four years.
That reward instantly became just 6.25 BTC as of May 11, 2020. From there on, Bitcoin has risen by over 40% and is still climbing. Crypto analysts establishing their theories on past halving cycles predicted the increase in price as supply was reduced, but not before a miner induced “death spiral” took place.
This death spiral was estimated to cause widespread capitulation in the weakest miners, forcing them to sell off their assets to fund future mining operations. But now, three months later, this death spiral never arrived; rising fees may be the answer.
With the Help of Rising Transaction Fee, Bitcoin Narrowly Escapes Death Spiral
One of the catalysts that sent the cryptocurrency bull run tumbling back at the crypto’s asset’s peak in 2017 at $20,000 was the congestion of the Bitcoin network and skyrocketing fees.
The BTC network clogged, and fees went through the roof as crypto investors knotted to buy BTC and send it to other exchanges to trade for altcoins at the peak of enthusiasm. That reality that scalability was nowhere near proficient of what was necessary to handle the sudden surge in interest caused the crash to arise.
However, fees this time around may have prevented a crash. Data shows that fee-based revenue has increased intensely since the split. The average transaction fee averaged just $0.81 in January through the halving, but post halving, this number has ballooned to $2.31.
Eventually, no more Bitcoin will be released this way as it halves again and again. In its place, the network itself should be self-sustaining where the asset’s valuations are high enough that fees withstand miners for the long-haul.
Before this happens, fees have begun to become a more meaningful foundation for miners already, enough to prevent a total collapse driven by submitting miners following a double in production costs.
When blockchain activity occurs to fall, however, the death spiral could catch up with miners ultimately.