I don't mean being a prophet of the end of the world or spreading FUD, but I need to know if Bitcoin investors (or any PoW currency) should worry about the following scenario:
Assume that Bitcoin enters a very long bear market that makes mining unprofitable and causes the bankruptcy of many mining companies / individuals. As I understand it, the difficulty of the network will continue to increase when the "target" block is removed, regardless of the number of miners (yes?)
- Bitcoin price falls too low for too long
- Mining becomes even less profitable
- More miners go bankrupt and are forced to close and sell their coins at any price they can get.
- The massive sale causes the price to fall further due to the sudden oversupply (back to # 1). This could cause a deadly spiral (or "depression" if desired).
And on top of that:
- New miners cannot join the network, because the difficulty is already too high and needs substantial investment to set up a profitable mining platform. The least investors would be willing to risk due to price movements.
- Because more and more miners are disconnected, the network will become increasingly congested, expensive, less distributed (small investors will be eliminated first, leaving wealth in fewer hands), more risky (the 50% attack will be easier ) and, ultimately, investors could lose faith in the system.
Also, from what I understand, if there are still very few miners left, the system ceases to have value since the transaction fees will be too high and too congested for any transaction to be practical.
Is this scenario possible and is there such a threat or is something missing?
If yes, is there any way to recover?
If "no", what would protect the system?