The author was asked whether the combination of economic and political factor like a price crash or governments banning mining could result in a sudden and sustained drop in the hash power. He was also questioned on whether this would cause a death spiral.
Andreas started by speaking about death spiral, stating that the difficulty is not calculated based on time but once every 2016 block are mined. He added that if the hash power witnesses a significant drop with only 50% of miners participating, it would result in blocks being issued every twenty minutes instead of 10 minutes.
This would, in turn, affect the difficulty calculation and readjustment of the average block time, which see a difference every four weeks instead of two weeks. He further added that it would take four weeks to be produced, which currently take two weeks.
He went on to say:
“A sudden and sustained reduction in hashing power will cause an increase of the time [between each] block, which will increase the interval [of time] until the next difficulty re-targeting.”
This was followed by the author speaking about the assumption of this theory, that it would result in several miners taking the exit route as they would be making less profit. This would then cause the hash rate to plunge more, resulting in an even slower block issuance which would lead to more miners dropping out, eventually causing a death spiral.
“First of all, that is unlikely to happen. We have seen that in other blockchains which suffered sudden reductions in [hash power]. Miners have a much more long-term perspective […] Therefore, if they have to wait three months to become profitable again, and they already have the equipment in place, then they are not turning it off.”
He went on to say that these miners “take a bet” that they will return to profitability and would wait till the re-targeting and difficulty becomes easier, adding that the miners who wait will be twice as profitable. Andreas stated that the other reason a death spiral is highly unlikely is that the difficulty adjustment algorithm can be changed if the plunge in the hash power results in the results in the re-targeting time being pushed too far.
Furthermore, Andreas stated:
“I think the term “death spiral” in itself produces this fantastic, dark image. It is a very strong, emotionally triggering term [for those who care about Bitcoin] […] But the chances of it happening are pretty low; the chances of nobody doing anything to fix it is near zero.”