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If enough people sell ether and drive the price down, is it possible that it would no longer be profitable for the vast majority of people to continue mining?

If so, it seems like it would be a snowballing effect on the network. E.g. people sell -> price goes down -> profit falls for miners -> miners stop working -> network halts.

Just trying to understand the worst case scenario.

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    I don't think it's a duplicate question (at least of the linked-to question); this seems more like an economics question than a technical one (except for the part regarding falling difficulty).
    – lungj
    Jul 15, 2017 at 15:56

2 Answers 2

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You are missing a crucial element in your logic and that is that it becomes more profitable to mine when some miners stop mining. When people stop mining, the blocks are discovered at a slower pace. When that happens, the difficulty drops, and when that happens you can mine more ether using the same amount of time and energy.

So the number of miners will not develop like the snowball effect you describe. Rather, the number of miners is what we would call a stable equilibrium: If more miners join, all other things being equal, the profitability will drop and more miners will leave the system; if miners leave the network, the profitability goes up, and that will attract other miners or existing miners will expand their operation. So a deviation from the number of miners in the equilibrium (a rise or a drop) will lead to a return to the equilibrium number of miners. That is why we call it a stable equilibrium.

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  • I understand that the network adjusts difficulty based on how fast blocks are discovered, I guess what I really want to know is what happens to the efficacy of the network as the number of miners drops? In other words, are there negative performance impacts due to an ether bear market? E.g. will transactions take longer?
    – sager89
    Jul 15, 2017 at 16:04
  • If a lot of miners suddenly leave the network, blocks will be discovered slower and thus confirmation of transactions will take more time. Until the network adjusts the difficulty downwards. So for a short period of time, the network will appear slower to the inconvenience of the users. Jul 15, 2017 at 16:15
  • Let me ask it another way - to the consumer, what's the advantage of having 1000 mining nodes on the network vs 100?
    – sager89
    Jul 15, 2017 at 16:18
  • The network is harder to attack if there are 10 times more miners. So in the situation of very few miners, a user could theoretically receive a transaction which was then reversed due to a double-spend attack on the network. If this reversal happens after a good has been delivered, said Ethereum user would not get their payment on this transaction. Jul 15, 2017 at 16:26
  • So that likely protects from the 51% attack, are there any other benefits to more miners - or is that the main one?
    – sager89
    Jul 15, 2017 at 17:12
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The network is not more efficient at executing smart contracts or running transactions having 10000 miners vs 1 miner. The main advantage to more miners is that it's harder to attack.

So when miners leave, difficulty will drop and it will be less hard for the remaining miners until we find a stable place (difficulty).

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