Why Miners mine BCash or Bitcoin when it is less profitable.
Hi guys, welcome to The Cryptocoin Den,
My first post will be about some of the game theory behind the SHA256 mining between BCash and Bitcoin.
So I read a few interesting articles about the game theory behind the SHA256 mining and the alternating between BCash and Bitcoin, but they did not really explain the current equilibrium state between BCash and Bitcoin.
I suggest to read some background articles first :
BCash difficulty adjustments by Jimmy Song
Mining BTC BCH past present and future by Jimmy Song
Even miners that hate BCash cash might want to mine it.
While Jimmy Song's articles are interesting and generally well founded, lately he and others do not understand why the miners keep mining BCash when it is less profitable than Bitcoin and visa versa.
But actually to me this makes sense and here is why I believe that.
At first not many miners mined BCash, only the pro BCash miners, who look for the profit of selling more mining equipment and trying to replace Bitcoin by BCash so they can have more control.
Then, when the pro BCash miners ( and others ) started pumping BCash and together with the lowering of the difficulty, it became more profitable to mine. But then we had large spikes and switches between Bitcoin and BCash ( as explained by Jimmy Song in the second linked article ) which impacted the performance of both Bitcoin and BCash negatively.
At some point the miners must have realised this was bad for both coins and most likely some of them talked and agreed not to switch large quantities of hash power every time the profitability of one coin was better, but to find equilibrium in mining both coins at the same time.
As you can see in my Excel sheet below, currently the hash power of most of the pro BCash miners is divided between Bitcoin and BCash but with a distribtion of roughly 90% Bitcoin to 10% BCash.
I believe it is logical for miners to want to have this equilibrium, even the ones that do not want to destroy Bitcoin.
The pro Bitcoin miners do not want BCash to drop hard in difficulty because then BCash gets more profitable and all miners that are only looking for short term profit switch to BCash, however at the moment it seems the the pro Bitcoin miners mostly stay on the Bitcoin chain all the time.
The pro BCash miners have several drawbacks when the hashrate flip flops between both coins :
- They do not like the inflation that is caused by the large influx of BCash hashpower, because mid term that will make their BCash worth less.
- None of the miners, even the BCash supporters, want the Bitcoin network to slow down to a crawl and undermine it's value ( at least not until BCash has taken over Bitcoin, which imho is quite unlikely ) because we still have altcoins like Ethereum and Litecoin that may overtake both Bitcoin and BCash if the flip flopping would continue, or at least their relative market share would increase.
- We can assume that the pro BCash miners still have some significant amounts of Bitcoin stockpiled.
- The biggest pro BCash miners are also the SHA256 mining equipment manufactures ( like Bitmain with Antpool and BTCCOM ), so if they can sell their equipment both ways, that is also a plus for them.
Now if you look at Fork.lol you can see that BCash and Bitcoin slowly came together in profitability as a result of the hashpower split between BCash and Bitcoin relatively staying the same ( roughly a 10% - 90% split ).
So in effect the pro BCash miners created and try to maintain an equilibrium between Bitcoin and BCash where the profitability is nearly the same for both. And they can easily do this, because they have enough hashpower to support BCash, because it can go about with only 10-15% of the total hashrate.
Finally the pro BCash miners may also want to keep both chains relatively healthy until B2X ( Segwit2X ) is released, and then they have 2 fronts of attack against Bitcoin, BCash and B2X. If then B2X fails, then they can keep alive BCash and visa versa.
So that is substance for my next article, the game theory for BCash and B2X, and if they can somehow work together in attacking Bitcoin.
My first post will be about some of the game theory behind the SHA256 mining between BCash and Bitcoin.
So I read a few interesting articles about the game theory behind the SHA256 mining and the alternating between BCash and Bitcoin, but they did not really explain the current equilibrium state between BCash and Bitcoin.
I suggest to read some background articles first :
BCash difficulty adjustments by Jimmy Song
Mining BTC BCH past present and future by Jimmy Song
Even miners that hate BCash cash might want to mine it.
While Jimmy Song's articles are interesting and generally well founded, lately he and others do not understand why the miners keep mining BCash when it is less profitable than Bitcoin and visa versa.
But actually to me this makes sense and here is why I believe that.
At first not many miners mined BCash, only the pro BCash miners, who look for the profit of selling more mining equipment and trying to replace Bitcoin by BCash so they can have more control.
Then, when the pro BCash miners ( and others ) started pumping BCash and together with the lowering of the difficulty, it became more profitable to mine. But then we had large spikes and switches between Bitcoin and BCash ( as explained by Jimmy Song in the second linked article ) which impacted the performance of both Bitcoin and BCash negatively.
At some point the miners must have realised this was bad for both coins and most likely some of them talked and agreed not to switch large quantities of hash power every time the profitability of one coin was better, but to find equilibrium in mining both coins at the same time.
As you can see in my Excel sheet below, currently the hash power of most of the pro BCash miners is divided between Bitcoin and BCash but with a distribtion of roughly 90% Bitcoin to 10% BCash.
I believe it is logical for miners to want to have this equilibrium, even the ones that do not want to destroy Bitcoin.
The pro Bitcoin miners do not want BCash to drop hard in difficulty because then BCash gets more profitable and all miners that are only looking for short term profit switch to BCash, however at the moment it seems the the pro Bitcoin miners mostly stay on the Bitcoin chain all the time.
The pro BCash miners have several drawbacks when the hashrate flip flops between both coins :
- They do not like the inflation that is caused by the large influx of BCash hashpower, because mid term that will make their BCash worth less.
- None of the miners, even the BCash supporters, want the Bitcoin network to slow down to a crawl and undermine it's value ( at least not until BCash has taken over Bitcoin, which imho is quite unlikely ) because we still have altcoins like Ethereum and Litecoin that may overtake both Bitcoin and BCash if the flip flopping would continue, or at least their relative market share would increase.
- We can assume that the pro BCash miners still have some significant amounts of Bitcoin stockpiled.
- The biggest pro BCash miners are also the SHA256 mining equipment manufactures ( like Bitmain with Antpool and BTCCOM ), so if they can sell their equipment both ways, that is also a plus for them.
Now if you look at Fork.lol you can see that BCash and Bitcoin slowly came together in profitability as a result of the hashpower split between BCash and Bitcoin relatively staying the same ( roughly a 10% - 90% split ).
So in effect the pro BCash miners created and try to maintain an equilibrium between Bitcoin and BCash where the profitability is nearly the same for both. And they can easily do this, because they have enough hashpower to support BCash, because it can go about with only 10-15% of the total hashrate.
Finally the pro BCash miners may also want to keep both chains relatively healthy until B2X ( Segwit2X ) is released, and then they have 2 fronts of attack against Bitcoin, BCash and B2X. If then B2X fails, then they can keep alive BCash and visa versa.
So that is substance for my next article, the game theory for BCash and B2X, and if they can somehow work together in attacking Bitcoin.
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