Since difficulty is only adjusted every 2016 blocks, what would happen if hash rate was to decrease rapidly? Wouldn't this cause blocks to be created less frequently and also making the time until difficulty is adjusted even longer?
Here's a scenario I had in mind, please point out any errors in it:
- Some event causes people to lose faith in Bitcoin.
- Those people sell off a lot of Bitcoins, causing the value of a Bitcoin (compared to e.g. a dollar) to drop a lot
- Miners (who pay their electricity bill in dollars) find that mining is no longer profitable and a lot of them quit (until it is once again profitable)
- The time between blocks has now increased (let's say to 15-20 minutes) since difficulty has not yet been adjusted.
- People experience that the Bitcoin network is slow, it takes a lot of time to get transactions confirmed, and starts to lose faith in Bitcoin. Go to (1).
So, could this cause a downward spiral of the faith in Bitcoin?