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A recently available article published byBitcoin.comreflected on the drastic drop in BTC mining hash power from all-time highs in the weeks before February 17.

It really is worth pointing out that the years-long claim thathash power leading price is incorrect. The profitability calculation that each miner must proceed through is really a complex one and something must consider their very own economic costs, usage of liquidity, and also usage of insider knowledge.

If we have been to overlay a chart of hash power and price, (with the issue period in the centre), you can find clearly times when the purchase price leads the hash power, such as for example at point A, in which a downtrend in prices result in lower average hash rates in exactly the same period between A and C. Furthermore, as observed in the D region, a lowering of the issue, which normally sees a rise in hash power actually saw a reduction in hash power for the initial couple days of March 4-6. There appears to be little to any conclusions that one may draw simply by considering the charts. But a very important factor is clear: both hash power and BTC price continue up as time passes. But why?

Source: CoinWarz

Although it is obviously the case that some miners could be micromanaging their hash power on a regular basis to be able to maximize their returns, you can find way too many competing factors that affect the profitability calculation to create any claims of price always leading hash power or vice-versa. For example, one factor that’s often overlooked may be the 100-block rule, which means that no miners can spend their rewards almost the next day (100 blocks). This means that they dont do whatever may affect the liquidity of these rewards earned the prior day, such as, taking part in a51% attackon the network or other such hypothetical but completely impractical strategies.

Another aspect that strongly affects the purchase price market but isn’t generally considered is that information disparity is probable the best driver of hash power strategy compared to the actual price. In the end, would a hash power owner much more likely react to prices they see move ahead the exchange market or on insider knowledge a big whale was moving to dump coins in to the market or create a huge purchase? Like in equities markets, these kinds of insider information are more likely to operate a vehicle speculation, and where you can deploy hash power is very much indeed a speculation business (at the very least it is in today’s day).

Just what exactly keeps speculation on BTC hash power (and price) continue increasing?

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Price manipulation

With this particular knowledge, what will be the biggest insider signal of the markets increasing or down?

Concentrating on the upward signals first, because that one is easier, all you have to do would be to understand that USDT orTether controls the BTC market, and every USDT minted inevitably can be used to buy BTC in a few exchange or another. Once that is understood, all a good miner must do is watch the issuances of USDT on the blockchains as a respected indicator that the BTC price will undoubtedly be moving higher in the near term. The contrary is true. If there is a large whale preparing a big exit from Bitcoin markets, that could affect the investments in hash power. Nonetheless it would need to be big. After all, regulators making BTC illegal sort of big.

A very important factor is for several that both BTC price and hash power (and therefore energy expenditures) are tangled up in a multilevel complexPonzi schemeright nowwhere both will inevitably rise unfailingly so long as increasingly more participants are still ready to join the scheme. Liquidity is supplied by a shadow central bank, Tether Inc., which includes the capability to print money without the checks and balances since they operate in a grey area apparently outside the jurisdiction of america. The money they print could be distributed through their web of cooperating digital currency exchanges, also operating in the grey, the majority of that are not being too picky about where their customers result from and needing only an email to create an account. That is modern banking, they state.

At least for the present time

All this is currently possible as the price of BTC and its own continual rise (powered by Tether) is enough to help keep the hash power growing and enticing increasingly more participants to become listed on the scheme. As long as the purchase price keeps on doubling, then your hash power (and energy waste) could keep on rising. This can go on, at the very least until among 3 things happen:

1) People stop joining in on the scheme after realizing the reality of the scheme.

2) An external authority puts an end to Tethers printing ability, thus un-tethering the BTC price from their printing press.

3) The diminishing block reward subsidy head to zero in the BTC protocol.

As the former 2 cases will happen soon, another is inevitable.

The Bitcoin protocol is defined in a way that allbitcoin miningrewards could have been paid sometime around 2140, and blocks will contain no reward subsidies and only fees (which on the BTC network currently constitute less than1% of block rewards). Butlongbefore then, 99.8% of most bitcoins (~21m) could have been given out by simply2040. That is significantly less than 20 years. So, in all probability, this completely wasteful behavior of miners adding increasingly more hash power and burning increasingly more useful gigawatts of power will cease next 2 decades because mining BTC wont get you any rewards from then on. So what regarding all of your capital expenses? Well, hope you earn back your costs a long time before then1.

Suppose you’re a miner, which concerns you. If so, you should be looking at alternative Bitcoin projects that actually concentrate on transaction fees because the primary element of mining rewards, such as for example BSV, and planning the migration from the BTC profit model, that is moving towards less and less transactions whilst having higher and higher BTC/USD prices to be able to compensate, to 1 where you merely use hash capacity to mine blocks if it’s profitable to take action because of sufficient transactional volume, otherwise, just shut down your machines. Its hard to obtain a lot more efficient than that.

/Jerry Chan

NOTE:

[1] Most miners intend to break even after 2 yrs deploying newly acquired hash power. This can radically change should they start to see the long-term price trend of bitcoin change next 2 yrs.

Watch: CoinGeek NY panel, How exactly to Achieve Green Bitcoin: Energy Consumption & Environmental Sustainability

Not used to Bitcoin? Have a look at CoinGeeksBitcoin for novicessection, the best resource guide for more information about Bitcoinas originally envisioned by Satoshi Nakamotoand blockchain.

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