Difficulty Adjustment Is Why Bitcoin Will Never Die-3.24

Several reports and videos out of China over Thanksgiving weekend have shown large-scale shutdowns of bitcoin mining equipment, as the falling price of bitcoin made mining unprofitable. Broader data show that miners worldwide are going offline. This might seem incredibly scary when viewed through a traditional business lens: When Sears shuts down yet another batch of stores, for instance, it’s a pretty clear sign that Sears as an entity, business, and even as a concept is headed for the dustbin of history.

But that’s not how bitcoin works, thanks to one of the many strokes of genius baked into its fundamental design: difficulty adjustment. The bottom-line explanation of difficulty adjustment is that every time a mining rig is shut down, the bitcoin protocol increases the incentive for other miners to stay online. It’s as if every time a Sears shut down, all the remaining stores became more profitable.

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