Jimmy Song is a bitcoin developer and principal architect at blockchain technology startup Paxos.
In this opinion piece, Song discusses mining patternson the bitcoin cash blockchain, theorizing on what they might indicate about the incentives powering the new cryptocurrency.
Over the weekend, the bitcoin cash blockchain experienced a notable technical change.
Like the bitcoin blockchain from which it forked, bitcoin cash is hard-wired to adjusthow hard it is for miners to claim its rewards, and on Saturday, it saw such a change. As a result, bitcoin cash was made 300% more difficult to mine.
This, in turn, caused the profitability of the coin to decrease dramatically. Many miners left for bitcoin, and for about 10 hours only a few blocks were found.
As a result, emergency difficulty adjustments (a technical mechanism unique to bitcoin cash) were triggered, causing the difficulty to drop enough for miners to begin switching back.
What's interesting, however, is that at the time, bitcoin cash was stillless profitable to mine than bitcoin by about 20%. Still, many miners, including those using pools like BTC.Top, ViaBTC and AntPool continued dedicating computing power to the blockchain.
This means these miners were likely giving up profit that they could have earned had they been mining bitcoin.So what gives? And why are miners mining at a loss?
This is not an easy question to answer and my analysis here is speculative. But, here are some possibilities:
Miners may be committed to making the new cryptocurrency work, as they may have now accrued a large bitcoin cash position.
Armed with this vested interest, they may believe slow blocks will cause bitcoin cash to tank, so they may be mining to keep the network working smoothly.
The argument against this is that during the 10-hour window after the non-emergency difficulty adjustment, many of the same miners left. If consistent blocks were the major concern, there should have been more mining power on bitcoin during that interval.
The miners mining now may be thinking that the bitcoin cash price will increase in the near future to make mining worthwhile. A 3040percent increase in the bitcoin price relative to bitcoin would certainly make their mining profitable, and they may be waiting until then to sell.
These miners may have insider information about a large buy order or may be just hoping for larger fluctuations of bitcoin cash price.
Another theory is that there may be bitcoin cash supporters that are subsidizing mining in some way, behind the scenes.
This could be something like an over-the-counter market for bitcoin cash where buyers are paying a higher price than the exchanges to incentivize mining. If the buyers demand freshly minted bitcoin cash, this would effectively make it so miners were the only supply that could satisfy this particular demand.
Similarly, bitcoin cash supporters could simply be paying pools to point hash power the blockchain network.
Ultimately, there are now more questions than answers.
We don't really know why miners are mining bitcoin cash instead of bitcoin. But, we know that at the very least, they aren't making as much money as they could, and this means these miners are paying some opportunity cost in order to mine bitcoin cash.
Gold panning image via Shutterstock
The leader in blockchain news, CoinDesk strives to offer an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of CoinDesk.
For more details on how you can submit an opinion or analysis article, view our Editorial Collaboration Guide or email [emailprotected].
- Bitcoin price | index, chart and news | WorldCoinIndex - April 22nd, 2019
- Analyst: Bitcoin (BTC) Likely to Soon See Massive Volatility ... - April 21st, 2019
- Bitcoin Cash - Wikipedia - April 21st, 2019
- Bitcoin heads for mass market adoption as Millennials get onboard - April 21st, 2019
- Major Bitcoin hard and soft forks. Where are they now? - April 21st, 2019
- Bitcoins Long Road to Privacy | Crypto News Monitor | The #1 ... - April 21st, 2019
- Bitcoin [BTC] mining could go nuclear; Belarus emerges as ... - April 21st, 2019
- Crypto Traders Bullish Bitcoin (BTC) Call Goes Viral Plus ... - April 21st, 2019
- Benefits of Trading with Bitcoin Live Bitcoin News - April 21st, 2019
- Bitcoin Exchange Binance Confirms Delisting Of Bitcoin SV - April 21st, 2019
- How To Explain Bitcoin To Your Friends & Family ... - April 21st, 2019
- Bitcoin's Path to Retake $20,000 Could Be Slow and Painful ... - April 21st, 2019
- Cryptocurrency Bear Market Waning, Going Through Accumulation ... - April 21st, 2019
- What is Bitcoin? The Complete WIRED Guide | WIRED - April 18th, 2019
- Bitcoin Price Today - Live Bitcoin Value - Charts & Market ... - March 16th, 2019
- Suite of Crypto Services to Leverage Nasdaq Framework ... - March 16th, 2019
- Bitcoin | Definition, Mining, & Facts | Britannica.com - January 13th, 2019
- News - Bitcoin News - Page 952 - January 6th, 2019
- Bitcoin | Bitcoin Price | Bitcoin News | BTC | Info.Binance.com - December 24th, 2018
- Bitcoin Technical Analysis - FXStreet - December 20th, 2018
- Bitcoincharts | Charts - December 20th, 2018
- Bitcoin Crypto-Economics Index - coindesk.com - November 29th, 2018
- Bitcoin (BTC) Price, Chart, Info | CoinGecko - November 17th, 2018
- Bitcoinker - The Best Bitcoin Faucet, Claim Every 5 Minutes! - November 17th, 2018
- Africa Dominates P2P Bitcoin Exchange Paxful With $64 Million ... - November 10th, 2018
- Bitcoin Dips Below $7,000, Hitting Lowest In 2 Weeks - August 8th, 2018
- Things you need to know Bitcoin.com - July 29th, 2018
- Bitcoin - Bitcoin Price Live, BTC Value, Mining, BTC to USD ... - July 10th, 2018
- Digital Currencies and Financial Inclusion: Revisited | CGAP - May 19th, 2018
- Bitcoin vs. Electronic Money: Digital But Different | CGAP - May 19th, 2018
- Must I pay tax this year if I transfer bitcoin from ... - April 4th, 2018
- Will a 1099-B form work best for reporting bitcoin ... - April 4th, 2018
- Bitcoin (BTC) price: News & Live Chart - Trading Analysis ... - March 29th, 2018
- Bitcoin USD - BTCUSD Overview - MarketWatch - February 28th, 2018
- Buy Bitcoin IRA | Bitcoin IRA Investment & Retirement Account ... - February 28th, 2018
- Bitcoin Fees Have Become Infeasible - Bitcoin News - December 23rd, 2017
- Bitcoin's incredible surge takes it above $9,500 - Nov. 27 ... - November 27th, 2017
- Warning Signs About Another Giant Bitcoin Exchange - November 23rd, 2017
- What Is Bitcoin, and How Does It Work? - The New York Times - October 6th, 2017
- Why Beanie Babies make for a better investment than bitcoin - MarketWatch - September 5th, 2017
- Bitcoin's price hit $5000 last week. It's still a dumb investment - Los Angeles Times - September 5th, 2017
- Bitcoin dips another $300 after China's cryptocurrency crackdown - CNBC - September 5th, 2017
- IRS Eyes Profits From Bitcoin and Bitcoin Cash Investments - Investopedia - September 5th, 2017
- Sequoia, IDG to Invest in China Bitcoin Mining Giant - Bloomberg - September 4th, 2017
- Bitcoin Price Drops By Over $250 as Crypto Markets Lose Billions - CoinDesk - September 4th, 2017
- Bitcoin $5,000: Currency Hits New Record High | Fortune.com - Fortune - September 2nd, 2017
- Bitcoin Drops Below $5000 as Crypto Markets See $13 Billion Sell-Off - CoinDesk - September 2nd, 2017
- Searching for the future of currency, major companies try Bitcoin technology - PBS NewsHour - September 2nd, 2017
- Bitcoin Mempool is Empty and High Transaction Fees are no Longer Required - newsBTC - September 2nd, 2017
- Literally just one huge chart showing bitcoin's incredible rise to $4800 - MarketWatch - September 2nd, 2017
- Bitcoin's nearly five-fold climb in 2017 looks very similar to tech ... - CNBC - September 2nd, 2017
- BTC-e's Big Claim: Bitcoin Withdrawals to Begin Tomorrow - CoinDesk - CoinDesk - September 2nd, 2017
- As bitcoin surges in price and popularity, so do the complaints - CNBC - August 31st, 2017
- Here is how Indians are minting a fortune in bitcoins - Economic Times - August 31st, 2017
- Bitcoin jumps nearly 70% for August to record high, offshoot 'bitcoin cash' falls to more than one-week low - CNBC - August 30th, 2017
- Bitcoin Foundation seeks legal protection from US currency regulation - The Independent - August 30th, 2017
- Bitcoin's epic rise leaves late-1990s tech bubble in the dust - Economic Times - August 30th, 2017
- 99Bitcoins | Buy Bitcoin, Bitcoin Guides & Reviews for ... - August 29th, 2017
- Dark web finds bitcoin increasingly more of a problem than a help, tries other digital currencies - CNBC - August 29th, 2017
- Bitcoin Meets Zcash: Developers Test Tool for Trustless Trades - CoinDesk - August 29th, 2017
- Russian Regulator: Bitcoin Should Be Limited to 'Qualified Investors' - CoinDesk - August 29th, 2017
- As bitcoin and rivals surge, so too have complaints to the CFPB - MarketWatch - August 29th, 2017
- Is Bitcoin the New Gold? - TheStreet.com - August 28th, 2017
- This Swedish guy bet all his life savings on bitcoin and it made him 100 times richer - Business Insider Nordic - August 28th, 2017
- How To Gain Bitcoin Exposure Inside Of Your Traditional Brokerage Account - Seeking Alpha - August 28th, 2017
- Value of all digital currencies hits record around $160 billion as ... - MarketWatch - August 28th, 2017
- Why Motherboard Is Capitalizing 'Bitcoin' Again - Motherboard - August 28th, 2017
- New Bitcoin.com Charts: The Bitcoin Ecosystem at a Glance - Bitcoin News (press release) - August 27th, 2017
- Expert Predicts Bitcoin Will be Worth up to $20000 in the Next Three Years - Futurism - August 27th, 2017
- Does Bitcoin Have a Mining Monopoly Problem? - Fortune - August 27th, 2017
- Bitcoin poised to challenge record after recovering from correction - MarketWatch - August 26th, 2017
- Bitcoin Prices Rise But Fall Short of All-Time High - CoinDesk - CoinDesk - August 26th, 2017
- Bitcoin and Artificial Intelligence Can Help Fight Sex Trafficking ... - Fortune - August 26th, 2017
- Bitcoin Investors, Beware: The IRS Is Coming for Your Vast Riches - TheStreet.com - August 26th, 2017
- Bitcoin's Lightning Network Moves Closer to Compatibility - CoinDesk - CoinDesk - August 26th, 2017
- A sketchy Satoshi has popped up to promote his new blockchain - The Verge - August 26th, 2017
- Bitcoin And Why You Think You're Right (Even When You're Wrong) - Seeking Alpha - August 26th, 2017
- Bitcoin and Ether rise, helping take crypto space above $150 billion market cap - MarketWatch - August 23rd, 2017
- Bitcoin Prices Are Up Over $100 Already Today - CoinDesk - August 23rd, 2017
- MGT Capital Raises $2.4 Million to Expand Bitcoin Mining Operation - CoinDesk - August 23rd, 2017