Massive drop in Bitcoin price today. Maybe here's why

Not sure if true, but apparently the massive drop in Bitcoin’s price is due to a drop in it’s hash rate. Read this Twitter thread to understand why Bitcoin’s hash rate changes and how it affects the network’s performance:

  1. Bitcoin’s hash rate just nuked 30%. A few months ago a friend asked “What would happen if China suddenly stopped mining?” I’ll share my understanding of mining difficulty, and why I believe this significant drop is not a huge concern:

  1. Bitcoin is designed in a way that it tries to mine one block roughly every 10 minutes. The difficulty is basically how lucky you need to get to mine the next block, and it fluctuates to keep this block time around 10 minutes.

  2. If you have a sudden influx of new miners to the network, then there is now more computing power trying to mine the next block. The more computing power looking for block solutions means that the coming blocks will probably get mined faster on average, say every 8 minutes.

  3. Every two weeks, the Bitcoin network automatically does a quick calculation as to how many blocks were mined in the past 2 weeks and it would assess that the difficulty needs to be increased in order to account for the recently joined mining power.

  1. By increasing the difficulty, finding the next block becomes harder and the average will return to around 10 mins again. Incredible design by Satoshi yet again! THE TIMECHAIN.

  2. Now the opposite happens when miners suddenly turn off, it takes a longer time for the remaining miners to find a solution for the next block, so block times may go up to 12 mins. if a huge amount of power is turned off, like 70%, then blocks would become painfully slow…

  3. …for around 2 weeks. But afterwards, the difficulty would decrease and block times would improve.
    We can actually do a rough calculation, time = difficulty * 2^32 / network_power

  4. When the difficulty was 2110^12 and the network power is 150m terahashes /s (15010^6 * 10^12 H/s = 1.510^20 H/s). (at time of originally writing this Feb 10th.) time = 2110^12 * 2^32 / 1.5*10^20 = 600 seconds so almost 10 mins exactly. Our baseline.

  5. If China pulled 70% of mining power there would be 0.4510^20 Hashes/seond remaining, time = 2110^12 * 2^32 / 0.45*10^20 = 2004 seconds 33 minutes.

  6. The network would be pretty clogged for two weeks, with a transaction throughput roughly a 3rd of usual. Honestly I don’t think this is that bad, fees would just be a bit fucked for a while but that has happened before.

  7. A good way ppl like to think about it is imagine a bunch of people queuing for a bus (transactions) but the bus can only take ~2000 people every 10 minutes, people have to offer how much they are willing to pay to get on the bus (transaction fee).

  8. and the driver (miner) gets to decide who they take along with them (usually highest payers). After two weeks the difficulty would decrease significantly, block times would trend back to normal, and the network would start processing transactions faster.

  9. So I do not think there is much to worry about. Unless you are making heaps of on chain. Other attack vectors could arise if the network hash rate drops to a point at which 51% attacks are viable, I think we are far from that.

  10. It wouldn’t just be two weeks though. It would be far longer than that because the difficulty adjustment happens every 2016 blocks, not every two weeks. So if it takes 33 minutes (on average) to mine a block we’re looking at something closer to 6 or 7 weeks of slow blocks.

Source: https://twitter.com/coinjoiner/status/1383596049953038336

What do you guys think?

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Nice read, thanks for sharing.

I personally don’t worry about these dips, been there done that, and no worries long term. The extreme gains the last few weeks were never gonna last and a correction was expected. This hashrate topic might be the trigger.

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Thx @Krypto-Kai.

Saw this online:

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Exactly. Every … weeks a drop is expected. As long as the lows are higher than the low before everything is great!let’s go to 100k!

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