I asked to be proven wrong but sadly nobody did. Blinded by the rise in price of both BTC and BCH nobody cared enough to look back to take stock. Let me explain as clearly as I can.
1) Mining Difficulty Adjustment.
Bitcoin mining recalculates and adjust the mining difficulty so that it produces a block every 10 minutes on average. This recalculation and adjustment is done after every 2016 blocks. Approximately every 13 days.
2) What happens if there is a sudden drop of hashing power?
Imagine that we have 10 computers contributing computing power to solve a problem every 10 minutes. If 1 of the computer fails then the problem will be solved every 11 minutes because there are only 9 computers working on the problem.
If there is a catastrophic failure such as 9 computers failing then it would take at least 100 minutes for the remaining computer to solve the problem. This was the situation when BCH forked, where it took from 12 to 15 hours in the beginning to find a block instead of the expected 10 minutes. Fortunately for BCH the developers knew of this problem and built in an Emergency Difficulty Adjustment (EDA) which adjusted the difficulty down by 20% if less than 6 blocks were found in the last 12 hours.
3) How does a loss in mining power affect the current situation?
Before the fork
Block times would get longer but after 2016 blocks the difficulty will adjust and block time will get back to the normal 10 minutes. Miners will keep mining BTC because their equipment can only work on this coin. They will continue mining until their equipment is no longer profitable. They don't have a choice.
After the fork
The miners now have a choice. Should they be mining BTC or BCH and we can assume that they will make this profitability calculation and decision everyday. So the miners will be keeping an eye on the price, difficulty and transaction fees. At 3300 dollars for BTC and 300 dollars for BCH it is just about 55% more profitable to mine BTC. Mining profitability of BCH is getting close to BTC and can flip any time, especially with the enormous potential for BCH price to approach BTC.
If BCH is less profitable, why are any miners mining on that chain?
Well, for every chain there are miners who mine at a loss because they want to support the chain or they believe that the coins will be worth more in the future. These are the supporter miners and they exist on both chains.
Now what if there is a drop in mining power because some miners decide to switch chain for whatever reason or if there is a power failure ( hydro dam goes dry or fire at power plant taking it out for several months) that wipes off 10% of mining power on that chain.
If it happens on the BCH chain, EDA will kick in and readjust the difficulty downwards by 20% to arrive at the targeted 10 minutes block time. In addition to EDA, BCH also allows up to 8MB blocks, which means that the transactions in the mempool can be cleared at the rate of 8MB per block if necessary.
If it happens on the BTC chain, there is no EDA built in, so block time will get longer than 10 minutes. How much longer depends on the amount of hashing power lost. It will have to complete the whole 2016 blocks cycle before the difficulty can be readjusted to bring the block time back to 10 minutes. Instead of 13 days to readjustment it could take much longer. If the block time gets to 20 minutes it could take about a month before the difficulty is readjusted. This increase in block time affects the mining profitability. At the same time the transactions in the mempool are backing up and users will be getting increasingly frustrated with long confirmation times and high fees because of competition to get into the next block, and only 1MB of the mempool can be cleared at a time. ( At time of writing BTC mempool is 45MB ) This decrease in the profitability of mining may cause miners to switch to mining on the BCH chain because they now have this option. As more miners leave the problem gets worse and this can result in the dreaded Chain Death Spiral.
That can never happen? Well if the price of BCH goes up by another 300 dollars it will become more profitable to mine and miners will switch. This is real and not hypothetical. 600 dollars for BCH is not an unreachable figure. After all it is closer in design to the original Bitcoin.
Transaction fees
On the BTC chain, transaction fees gets higher as competition to get into the block intensifies. Miners are happy to earn this extra revenue but users are not. We can say that the BTC chain is elitist and only those who can afford the fees are welcome to use it. Those that can't or wont pay are encouraged to leave, and leave they will, perhaps for the BCH chain which is cheaper and faster.
On the BCH chain transaction fees are kept low because there is ample space in each block to accommodate all users. We can make an argument that if users don't have to pay a fee, they wont. However in reality the majority of users will pay and it appears that most people consider 5 cents to be a reasonable fee. Some are happy to pay more and some will pay less and in this way the BCH chain caters more for the masses. The rich don't mind subsidising their poorer cousins in India and Africa.
What about the lightning network where the users need only pay very small fees to use the network. Firstly the lightning network is not here yet. Secondly the miners don't get this fee and so will not be concern with the fees collected there.
Remember that more users means more value. This means that in the long run the BCH chain will gain users and grow value faster.
Source - bitcoinandtheblockchain.blogspot.com
1) Mining Difficulty Adjustment.
Bitcoin mining recalculates and adjust the mining difficulty so that it produces a block every 10 minutes on average. This recalculation and adjustment is done after every 2016 blocks. Approximately every 13 days.
2) What happens if there is a sudden drop of hashing power?
Imagine that we have 10 computers contributing computing power to solve a problem every 10 minutes. If 1 of the computer fails then the problem will be solved every 11 minutes because there are only 9 computers working on the problem.
If there is a catastrophic failure such as 9 computers failing then it would take at least 100 minutes for the remaining computer to solve the problem. This was the situation when BCH forked, where it took from 12 to 15 hours in the beginning to find a block instead of the expected 10 minutes. Fortunately for BCH the developers knew of this problem and built in an Emergency Difficulty Adjustment (EDA) which adjusted the difficulty down by 20% if less than 6 blocks were found in the last 12 hours.
3) How does a loss in mining power affect the current situation?
Before the fork
Block times would get longer but after 2016 blocks the difficulty will adjust and block time will get back to the normal 10 minutes. Miners will keep mining BTC because their equipment can only work on this coin. They will continue mining until their equipment is no longer profitable. They don't have a choice.
After the fork
The miners now have a choice. Should they be mining BTC or BCH and we can assume that they will make this profitability calculation and decision everyday. So the miners will be keeping an eye on the price, difficulty and transaction fees. At 3300 dollars for BTC and 300 dollars for BCH it is just about 55% more profitable to mine BTC. Mining profitability of BCH is getting close to BTC and can flip any time, especially with the enormous potential for BCH price to approach BTC.
If BCH is less profitable, why are any miners mining on that chain?
Well, for every chain there are miners who mine at a loss because they want to support the chain or they believe that the coins will be worth more in the future. These are the supporter miners and they exist on both chains.
Now what if there is a drop in mining power because some miners decide to switch chain for whatever reason or if there is a power failure ( hydro dam goes dry or fire at power plant taking it out for several months) that wipes off 10% of mining power on that chain.
If it happens on the BCH chain, EDA will kick in and readjust the difficulty downwards by 20% to arrive at the targeted 10 minutes block time. In addition to EDA, BCH also allows up to 8MB blocks, which means that the transactions in the mempool can be cleared at the rate of 8MB per block if necessary.
If it happens on the BTC chain, there is no EDA built in, so block time will get longer than 10 minutes. How much longer depends on the amount of hashing power lost. It will have to complete the whole 2016 blocks cycle before the difficulty can be readjusted to bring the block time back to 10 minutes. Instead of 13 days to readjustment it could take much longer. If the block time gets to 20 minutes it could take about a month before the difficulty is readjusted. This increase in block time affects the mining profitability. At the same time the transactions in the mempool are backing up and users will be getting increasingly frustrated with long confirmation times and high fees because of competition to get into the next block, and only 1MB of the mempool can be cleared at a time. ( At time of writing BTC mempool is 45MB ) This decrease in the profitability of mining may cause miners to switch to mining on the BCH chain because they now have this option. As more miners leave the problem gets worse and this can result in the dreaded Chain Death Spiral.
That can never happen? Well if the price of BCH goes up by another 300 dollars it will become more profitable to mine and miners will switch. This is real and not hypothetical. 600 dollars for BCH is not an unreachable figure. After all it is closer in design to the original Bitcoin.
Transaction fees
On the BTC chain, transaction fees gets higher as competition to get into the block intensifies. Miners are happy to earn this extra revenue but users are not. We can say that the BTC chain is elitist and only those who can afford the fees are welcome to use it. Those that can't or wont pay are encouraged to leave, and leave they will, perhaps for the BCH chain which is cheaper and faster.
On the BCH chain transaction fees are kept low because there is ample space in each block to accommodate all users. We can make an argument that if users don't have to pay a fee, they wont. However in reality the majority of users will pay and it appears that most people consider 5 cents to be a reasonable fee. Some are happy to pay more and some will pay less and in this way the BCH chain caters more for the masses. The rich don't mind subsidising their poorer cousins in India and Africa.
What about the lightning network where the users need only pay very small fees to use the network. Firstly the lightning network is not here yet. Secondly the miners don't get this fee and so will not be concern with the fees collected there.
Remember that more users means more value. This means that in the long run the BCH chain will gain users and grow value faster.
Source - bitcoinandtheblockchain.blogspot.com
