Saturday, May 16, 2020

Return Of The Bitcoin Chain Death Spiral.

Bitcoin mining is an economic activity. Miners will stop mining if it is unprofitable. The only exception is mining on the BCH and BSV chain where the supporters are mining to support the chain and are basically holding on to the coin for future profits. This happened in the case of BSV when the coin increased in price from $45 to $190 today. Doing the same on BTC at $9000 is not that easy.

To maintain current price there has to be about $8 million a day of new investment into BTC.

The above is the result of 1TH of mining on Viabtc. Since the halving on 11 May it is mining at a loss. Before the halving, mining difficulty was to readjust over 6 days, but today 7 days later it is expected to take another 3 days. This slowing down is due to miners leaving the network.

BTC mining profitability through price increase.

We can use the chart above to calculate the required price increase to break even on mining at the 100 EH mining today. This is ( 849/749*9000) which is $10,241. Over the last week BTC price have exceeded $10,000 briefly only to fall back to the mid $9000. There does not seem to be enough support among bitcoin supporters.

BTC mining profitability through reduction in hashrate

A mining breakeven can also be achieve if another ( 100 - 749/849*100) 12 EH of miners leave the network. This is a sizeable amount as the total hashrate mining on the BCH amd BSV chain is only about 5 EH.

Inefficient miners will stop mining.

As of today there are still 103 EH mining on the BTC chain. The price of BTC has increased from $8500 to $9500 but the number of miners have only reduced slightly from 120. Less efficient independent miners in mining pools must soon stop mining after the next difficulty adjustment in 3 days if the price does not increase.

BTC chain is slowing down and this is dangerous

The average number of blocks mined a day is about 122 compared to the 144 expected. Surprisingly the mempool has not grown much. This means that there are not many backed up transactions waiting to be processed. BTC is not suffering from a glut in popularity.

Chain Death Spiral

The chain death spiral is the theory that the BTC chain will grind to a halt if miners exit the network suddenly. This is because BTC does not have an emergency difficulty adjustment mechanism as in BCH and BSV.  BTC chain has already slowed from 10 minutes a block to 12. The problem is that when the readjustment does take place in say 3 days from today there will not be much change in the difficulty and that will have to last another 2016 blocks which on current performance could take a month.

Between BTC price increasing and miners leaving the network, miners are more likely to leave the network. This will slow the network down even more and people will start to notice. Will a white knight emerge to prop up the price, leading to a bull market and saving BTC?

Thursday, May 14, 2020

BTC BCH BSV Miners Hashrate and Price

With BTC halving yesterday all three coins have halved and we can now expect that miners will be rational and mine profitably. Prior to halving BTC normally commands up to 98% of total hashrate. As of today (14/5/2020) this has reduced to 89% or 95 ExaHash and blocks found over the last 24 hours have reduced to 109 block from the standard of 144 blocks. 

Based on current prices BTC hashrate will decrease to 70% before mining equilibrium is achieved across all three chains. If this happens quickly and the hashrate drops to 84 ExaHash BTC chain will slow to a crawl. Unlike before miners who have left will not return to mine at a loss out of loyalty. Panic may set in when this becomes clear which will lead to a drop in price and we enter the dreaded Chain Death Spiral.

Drop In BTC Hashrate

Block Found in last 24 hours

Profitability Calculations.

What will inefficient BTC Miners do? 

Before Halving   11250  BTC  @ 9500 = $106.8 million =  $0.89 per Exahash (120 Exahash)
After Halving        5625 BTC  @9500  =  $53.4 million  =  $0.56 per Exahash  (95 Exahash )

BTC hashrate must reduce to 70 Exahashes to equate pre halving earning levels. It is currently 91 Exahashes (15/5/2020) . A reduction from 95 yesterday. Where will these miners go will they move to BCH and BSV or will they shut down altogether?

Can they move to BSV or BCH ?

5625 BSV @ 190 = $1.06 million = $0.75 million per Exahash ( 1% = 1.4 Exahash)

Since BTC halving the hashrate of BCH and BSV have increased to 3% and 2% respectively. However the miners who moved here will also be mining unprofitably as the price of BCH and BSV remained stagnant.

Since 11 May 50 Exahashes have been turned off. Only 87 Exahashes are left mining on BTC and it needs to decrease even more.  As a result the BTC chain is slowing down. The next difficulty adjustment is expected in 4 days and perhaps more if more miners stop mining. Even if it makes it to the next difficulty adjustment, the next difficulty is expected to increase from 16.1 T to 16.48 T !! This is a serious problem for the BTC chain.

This situation is fluid and developing. The BTC mempool is increasing fast.

It now cost over $5 to transact on the BTC chain. This situation will get worse. 

Why is the price of BCH ans BSV stagnant?

Since halving the price of BTC moved from $8700 to $9700 but the price of both BCH and BSV did not move in tandem. This can only mean that the supporters of each chain have remained steadfast. 

BTC supporters are unable to push the price past the required level of $14,000 at least. BSH and BSV supporters can remain where they are. Unless BTC supporters moved over to either of these two chains their prices will remain stagnant. The ball is in BTC supporters court. As the mempool bloats, and cost of transactions get ever higher, panic will set in.

Because BTC chain is slowing down, it is unlikely that BTC price will go any higher. If panic sets in BTC price will collapse.  At time of BTC halving it was expected that the next difficulty was to be readjusted in 6 days that has now passed and it is expected to take another 3 days. I suspect that it will be even longer possibly another 6 days. If this is true then the next difficulty adjustment could take as long as a month! Something will break before then.

BTC miners have been net selling mined coins since the halving

This graph from Byte Tree shows the net selling by BTC miners since the halving.