Can Bitcoin Mining Difficulty Adjustment Be a Kick Start for the Market?

  • Darryn Pollock
    ⭐ Features

    Miners may have been the cause of the recent price drop, but could they also be the factor that turns things around for Bitcoin?

Can Bitcoin Mining Difficulty Adjustment Be a Kick Start for the Market?
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On December 19, the next Bitcoin mining difficulty adjustment will take place, and with the way things have been going, this adjustment will make mining easier, as is the manner in which the mining algorithm has been designed.

This drop in difficulty correlates directly to the drop in hash rate, which in turn has dropped as miners have switched off due to the lowered price of the cryptocurrency. In fact, many believe it was the miners, shop shifted to take advantage of Bitcoin Cash’s fork, that sparked the drop in the first place.

However, with this latest difficulty adjustment on the card, there is a chance that miners will come flooding back and boost the market by offering a lot more functional stability to the digital currency, which is very much up in the air in relation to its future.

Already there has been a spike in the hash rate, which has been in decline since November, and this is also reflected in the price of the cryptocurrency. The difficulty drop would thus turn those who are running at a loss back into profit for mining BTC.

Was it the miners?

Many have speculated about what took Bitcoin from its rock steady range of lower $6,000, collapsing towards $3,000 in November. Its timing was suspicious as the drop in price occurred on the same day on which Bitcoin Cash had its controversial hard fork.

Some have been led to believe that the hard fork had its role to play, but it was at the core, the action of the miners that led to the decline in price. With a hard fork, there is the possibility of receiving double coins when the chain splits, so this is clearly attractive to miners.

Miners thus changed their tactic to go after Bitcoin Cash, and as such, left Bitcoin high and dry, causing the beginning of the collapse. It was a risky move as the collapse caused a spiral in the price of Bitcoin, causing many miners to become unprofitable.

The Bitcoin hash rate briefly reached an all-time high of over 60 exahash per second (EH/s) on November 1, before free-falling to recent lows of 35 EH/s, a drop that almost resulted in a halving of hash rate on the network.

Time to adjust

This drop in hash rate has now led to the Bitcoin chain having to account for it and thus lower its difficulty. Every 2016 blocks, the difficulty required to mine Bitcoin goes through an automatic adjustment. As blocks are designed to be minted once every 10 minutes, this situates the network for an adjustment every two weeks.

The goal of the adjustment is to account for changes in the network’s hash rate. If there is a major influx of new miners, blocks will be found too quickly. The inverse is true, and with decreases to hash rate since the last readjustment, blocks are being mined every 10.9 minutes on average, almost 10 percent slower than expected.

This latest drop will reduce the difficulty by a future 10 percent, having already dropped 10 percent in the past month.

Steadying the foundations

While the price of Bitcoin has been heavily influenced by speculative investors, there is no escaping the influence that miners have on the health and well-being of the chain. When there is less focus or attention given to the mining of a chain, it often reflects in the general sentiment.

However, the miners operate on a fine line of profitability, and with a 10 percent drop in difficulty comes a similar return ROI, thus making the coin more profitable at its current price. However, the added incentive is that the growth could be compounded as more mining health will likely boost the price of Bitcoin.

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Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?

  • Yuri Molchan
    ⭐ Features

    Stablecoins show hardly any volatility compared to Bitcoin and altcoins, many are hoping that they will be able to bridge new crypto economy and regular fiat money

Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?
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Bitcoin, the father cryptocurrency, emerged in hope that it will remove all intermediaries in electronic commerce that cut off their share of payments. BTC was perceived as a P2P way to replace fiat cash in an electronic format, which would enable one party to pay another without any financial institution or payment platform which would demand its share of a transaction as a reward for its services.

What is wrong with Bitcoin

For quite a while Bitcoin was performing the way the crypto community expected. But the situation changed later – BTC rate became weaker, thus bringing down its financial and economic reliability, when it gets to be used as a regular means of payment.

You cannot have a currency that would cost like a British castle today, a gram of gold – tomorrow and a pack of French fries the day after.

At that point practical fintech minds came up with an idea of creating something which would become a breakthrough in the universe of crypto – a so-called stablecoin.

Will stablecoins solve the volatility problem?

Technically, stablecoins are protected from the volatility roller-coaster that Bitcoin and other cryptos love to ride. They are programmed to keep their prices stable and investors now are largely attracted to this new type of digital assets.

Stablecoin does not show any volatility in its monetary value, since it has a fixed connection to an asset it is pegged to. The major goal of using stablecoins is taking the best from decentralized crypto coins and combining it with a constant value. Thanks to it, stablecoins can be used as a reliable means of trade.

Asset-pegged stablecoins

Asset-backed ones get their value from an asset as can be understood from the name. An asset provides the necessary value to a coin, as well as the necessary legitimacy.

A great example of an asset-pegged stablecoin is Tether (USDT). In spite of a series of scandals at the end of last year, it remains the most popular stablecoin in the crypto market.

Recently, it has partnered with the Tron Foundation to launch a Tron-based stablecoin.

Other examples are TrueUSD (TUSD), USD Coin (USDC), the Gemini Dollar (GUSD), and the Paxos Standard (PAX). They are all pegged to the USD.

Crypto-backed stablecoins

Some digital coins work in a similar way to fiat-backed ones, however, they are pegged to collateral crypto. That means that crypto assets that ensure the value of such stablecoins are stored in a wallet similar to escrow.

A good example of a crypto-pegged token is Maker, which is ranked 16 on CMC.

Algorithmic stablecoins

Even though, stablecoin can be interesting at first thought but the way they are built goes against the principle of decentralization that crypto coins have as a foundation. Thus, many crypto fans and evangelists are positive that stablecoins must be linked towards not a centralized asset but a computer algorithm which takes value from a balance between supply and demand.

Basis is now considered the most promising algorithmic stablecoin of all.

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Can stablecoin ensure smooth future for the crypto industry?

The primary goal of all crypto assets was and remains to come up with virtual asset that would be liquid enough and not vulnerable to market volatility. From this point of view, stablecoins are a dream of all crypto fans and evangelists of a decentralized economy.

Apart from the potential to conduct crypto transactions smoothly, experts believe it can bridge the two worlds – fiat and crypto, bringing them a mutually beneficial coexistence. However, that may take time.

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