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The Economics of Bitcoin Mining: Past, Present and Future

At the time of writing, the guaranteed revenue (read: backed) per BTC block is around $130,000.00 per block, and the guaranteed revenue per BSV block is around $415.00, which many people believe is a metric that tells the whole story. But they are wrong! Bitcoin was never intended to handle multi-chain economies, but since 2017, there have been at least two competing applications, and since 2018, three competing chains: BTC, BCH, and BSV. Add XEC, and things are really starting to get weedy.

While this was not planned, it does create its own kind of strange equilibrium for the relative hash rate as miners chase profits.

This causes an imbalance across the economies of the entire Bitcoin system.

Too dramatic?

In this article, we will discuss three main points:

  • Basics of string switching.
  • The future of bitcoin mining
  • The best strategy to beat the bitcoin world.

Switch the chain for Fiat gain

Bitcoin is designed to be a self-correcting, self-regulating, and anti-breaking network in which any flaws in planning or execution are punished by network economics, but the BIP process, “branching” and the ability to switch between chains for the sake of fiat profitability has seriously spoiled game theory. Add fractional reserves of Bitcoin (derivatives), Tether fractional reserves (fraud), and the fact that nearly all trading takes place in buckets with opaque ledgers and all opaque trading practices, and we start to have a real problem on our hands.

But how does string switching work?

Example: BTC is up 5% on the day, BSV is down 1%. The difficulty is about the same for the price difference between the two chains, therefore, it would be worth about 6% to mine BTC. A miner who has a profit-shifting algorithm programmed into their fiat-focused pool software that sells coins on a daily basis should allocate more hashing power to Bitcoin to take advantage of a small window of profitable arbitrage in network profitability until the gap is closed. Since BTC has a period of about two weeks between difficulty adjustments while BSV uses a faster adjustment table that performs a calculation based on the difficulty of each block, the missing hash rate on BSV will make the difficulty drop quickly and balance out.

If the price of BTC drops, and BSV stays flat, hash power will work its way in the opposite direction. But BSV, due to its quick difficulty adjustment and low overall hash rate, will usually get “turbo mining” with small blocks so that adjustment happens quickly. This is because it is relatively inexpensive to become a large percentage of the network, so whoever does it first will usually be able to get a lot of blocks quickly and quickly fill the arbitrage gap.

The addition of BCH and XEC adds to the complexity of the math, but here is an example of BTC’s relative hash rate hitting a low while BSV’s hitting a high, illustrating the nature of paper arbitrage between all chains.

Bitcoin Coindance Chart

Does this go on forever? The future of bitcoin mining

Above, I explained the status quo of Bitcoin chain switching, but this practice is a product of monetary mania and a lack of understanding of Bitcoin’s economics or its true value. Hint: don’t measure up. The true value of Bitcoin lies in its ability to instantly measure and capitalize on economic imbalances. In another way, it is very effective capitalism at any distance!

Bitcoin support is a time bomb that needs to be replaced. On average, blocks cannot replace the support that is measured in satoshis. In BTC, this is impossible due to the block size limit, and it is still uncommon in BSV, although there are some examples where fees have outperformed existing support.

But that’s a very low goal to reach! In fact, Satoshi Nakamoto gave us a system where at least 50 bitcoins could be mined in each block, and instead of thinking of ways to make that a permanent reality, the average backer and user seem happy to live on the reduced support value of around 6.25 coins metal per block. This is sad, and Bitcoin punishes us for our lack of adoption strategy.

BTC is restricted to the number of transactions it can contain within a theoretical 1-4MB limit, so the largest number of transactions per block occurred in 2015 with a 999KB block containing just over 12,000 transactions.

General Information About Blockchair Mining
Source: Blockchair

In comparison, BSV has no cap, no limit, and no fear of falling into a stake where more profits cannot be sought. This is why (at least, for now) it’s good to keep the price low on BSV as evidence of the concept exploding on the network on an increasing basis.

But in the future, as blocks approach terabytes of data, even at the low price of $60 a coin and an assumed fee of one coin per gigabyte, a terabyte block will make 1,000 coins or $60,000 in revenue. Of course, with this kind of string demand, one can only assume the increasing relative value of BSV. If around $20,000 were priced like BTC today, there would be $20,000,000 per block in fees even while the fees per transaction are still very low and imperceptible. This is why it was so important to focus on the research and development of scaling technology such as the LiteClient and Teranode projects as well as complementary technology such as mAPI and scalable P2P concepts being built into the wallets.

It also shows why price is so important in the long run.

how and when me

The irresponsibility of the current market has come home with lending and derivatives platforms that have discontinued drawdowns and swap bailouts and a growing number of signs that we may see in the early stages of a “crypto bank operation” as everyone is forced to deleverage and re-envision real assets versus liabilities in Their balance sheets, the market contracted in what may be the early stages of a complete meltdown.

Meanwhile, BSV, with its almost complete lack of exposure to derivatives or a lending platform, has outperformed nearly every coin in the top 100 as the market looks to discover the true market value of blockchain assets.

This brings us to opportunity.

Mining hardware is very expensive, and there is a very high initial cost of entry to be a player in the Bitcoin infrastructure. This is partly by design, but the artificial nature of currency rates exacerbates the problem. This is a disadvantage for BSV miners as the purchasing power of ASICs and fiat has generally been less favorable than BTC, but the price of ASIC machines is closely related to the price of BTC itself. This is starting to correct itself as BSV has outperformed BTC this current season and ASICS has fallen from around $80/Tirahash to around $40/TH in the past few months.

Thus, we have a great opportunity. For anyone who was wise enough to sell the top, there was an incredible amount of paper wealth to be reaped from the last bull market. And honestly it was easy to call the top!

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If you have a strong fiat position, the strategy is to split your ASIC purchases over the next few months as the market bottoms out. Buy miners (used and new) figurative (and possibly literal) trash from mining companies who thought Michael Saylor and the Lemmings didn’t cheat this time!

Kurt Walkert Meme Twitter Posts
Seriously, very easy!

If you can buy appliances in the trough of desperation during this bear market and pay for two years of electricity up front, there is a massive opportunity to accumulate the world’s most valuable asset at a very low cost.

Many companies get into debt positions with cheap financing and crazy return opportunities and believe that the bull market will last forever. Given the general lack of understanding of Bitcoin, stunt money is quick to listen to supposed experts about the need to accumulate BTC that are utterly destroyed in market conditions like the past few months. (See: Bitfarms offloads nearly half of its BTC holdings)

But for the smarter institutional investors; Those who don’t need to sell coins to pay for electricity, there is a huge opportunity to direct retail and collect fixed rate coins for the future on seasonal night of BSV Real Hockey Stick for block size, price and profitability performance. Speaking from personal experience, there are a number of large clients who are looking to make large purchases of BSV mining over the coming months to specifically deploy this strategy.

With the imminent closure of SVPool, I believe that new pools will appear to fill their place, and new hashes will join the only remaining public pool: GorillaPool. Of course, TAAL Distributed Information Technologies Inc. will continue. (CSE: TAAL | FWB: 9SQ1 | OTC: TAALF) and SBI (TYO: 8473) are shedding their total hash rate, and I believe SBI will start introducing new services to differentiate themselves from Just Cluster fragmentation.

This is in addition to the new services coming from TAAL Console, WhatsOnChain (a TAAL brand), Project JungleBus™ from GorillaPool and some other upcoming projects to make the contract more competitive in the Bitcoin economy.

So, as the last cycle Kings drop their pearls and falter, the new Bitcoin Kings prepare to be crowned with the hashing power that will guide us forward in the next Bitcoin era: the true return of the Great Barriers!

Watch: BSV Global Blockchain Convention panel, Blockchain Mining & Energy Innovation

New to Bitcoin? Check out CoinGeek’s Bitcoin for beginners the ultimate resource guide to learn more about Bitcoin – as envisioned by Satoshi Nakamoto – and the blockchain.

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