Emiliano Grodzki is the CEO and founder of Bitfarms, one of the largest public Bitcoin mining companies in the world.
What we learned from the decline in Bitcoin’s hash rate
Bitcoin has been very popular lately. However, panic broke out over the weekend after the network hash rate dropped significantly, down around 49%. This was the largest 24-hour reduction in Bitcoin’s history.
There has been much speculation about the cause, including coal mine explosions and power outages in China’s Xinjiang Province. And with Bitcoin’s hash rate dropping, a price correction pushed it down to a low of ~ $ 50,000. Despite the panic selling, we did not cross the critical $ 50,000 level. Why?
Simply because Bitcoin continues to work 100% despite the drop in hash rate. Transactions are processed, blocks are mined, and coins continue to be freely traded and exchanged.
Bitcoin’s hash rate may have dropped over 40% in a single day, but what global currency standard or payment network could survive something similar and not deny service to a single user? Fast? Visa? MasterCard? The dollar, the pound, the euro or the yen? There are none.
This is not proof of where Bitcoin is headed, but proof of the resilience of the Bitcoin protocol and the strength of its decentralized design. Regardless of a single entity that is supposed to work, Bitcoin cannot be stopped by an event, something global lawmakers and governments are quick to recognize.
According to Garrick Hileman, research director at Blockchain.com and a fellow at the London School of Economics, 2021 will be the year governments will start selling Bitcoin. He attributes this to excessive government spending and money pressures, as well as economic and geopolitical tensions between the United States and China.
Whether or not these factors force governments to turn to Bitcoin, of course, Bitcoin owes its existence to the millions of people around the world. By investing our capital, time and effort in Bitcoin mining and its infrastructure, we choose Bitcoin to exist. And as long as there is a miner, the Bitcoin network will continue to exist.
Sure, blocks would be slow to process, but they would still be processed and, after a period of time with enough blocks added to the network, the difficulty would adjust and performance and processing times would return to normal.
There are still bumps in the road to equalize, but what is being created with Bitcoin is a new monetary system for anyone who understands what is wrong with the current one. Bitcoin is open, transparent, resilient and voluntarily driven by economic incentives. It’s too big to fail now.
A sell-off due to temporarily slower block times is not supported by any reason other than panic and is a strong indicator of how much new money has been in Bitcoin recently and what learning curve the capital is taking.
The past year has shown that Bitcoin is not going anywhere anytime soon and how important it will be to our future financial lives. A decline in Bitcoin value is certain to be in the future, but the outlook has never been so good.
This is a guest post by Emiliano Grodzki. The opinions expressed are solely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.