Bitcoin SV hash power might not have emanated from economically-driven actors, Binance Research reports

By Emma 12/19/19 2:41 PM

Bitcoin SV is a cryptocurrency created as a result of the Bitcoin Cash hard fork. BSV was launched with the aim of bringing the value and technology of the original Bitcoin – decentralized, using cryptocurrencies solemnly as a payment and transaction method, and improving the capacity of the network.

The BSV chain leader is Craig Wright, who calls himself Satoshi Nakamoto. Wright is one of the major media actors involved in the famous hash war along with Roger Ver.

Craig Wright is currently at the center of the legal troubles involved in calling himself Satoshi. The court, like everyone else, requested that he present convincing evidence of his statement, but it is still open. He was also involved in another lawsuit when he allegedly stole $ 10 billion of Bitcoin from his late partner, Dave Kleiman.

Not only the founder has shady actions, but BSV is also unclear. Currently, BSV has no official wallet platform released. It was facing a lot of criticism from the community when Ethereum co-founder Vitalik Buterin criticized that BSV was just a disaster.

Bitcoin SV mining

According to a report published by Binance on December 18, the motivation for Bitcoin SV miners is essentially non-economical.

Binance Research, the research arm of the exchange, tried to estimate mining profits for Bitcoin, Bitcoin Cash and Bitcoin SV.

Some key similarities and differences between BTC, BCH, and BSV. Source: Binance Research, BitInfoCharts

Interestingly, the calculations included in the report show that the BSV mining companies suffered significant losses and that miners did not make a profit.

For any PoW blockchain, mining rewards can be divided into two core components: block mining rewards (distributed in Coinbase transactions) and transaction fees.

The contribution of transaction fees relative to the total mining reward (i.e. the total transaction fee and block mining reward) fluctuates over time.

Transaction fees for both Bitcoin Cash and Bitcoin SV, have a very low contribution to the total block reward, per the chart below.

Source: BitInfoCharts, Binance Research.

For both BCH and BSV, miners have received almost insignificant rewards from transaction fees, compared to BTC.

From November 2018 to August this year, BSV mining profit is lower than BTC and BCH mining profit, read the report. The BSV reward-to-difficulty model implies that a significant portion of its hash power may not originate from economic drivers until August 2019, the researchers stated.

BTC / BCH / BSV reward-to-difficulty ratios. Sources: Coin Metrics, Binance Research

As illustrated in the chart above, the reward for the difficulty of BSV remained below the corresponding numbers of BTC during the said period but sometimes also caught up with the numbers of BTC and BCH.

Interestingly, in the first half of 2019, the reward rate for its difficulty was never significantly higher than BTC and BCH. This may imply that rational miners are always “arbitraging”.

The difference between the estimated profitability of BSV and BTC. Source: Binance Research

Binance Research also calculated losses sustained by miners mining Bitcoin SV instead of Bitcoin. Between November 2018 and December 2019, BSV miners suffered losses of $ 12 million to $ 13 million, per the report.

The cumulative estimated cost of opportunity to mine BSV (instead of BTC) in USD. Sources: Binance Research

Also reported, Bitcoin Cash mining profits were still lower than Bitcoin in the period from June to August, estimated at $ 7.7 million.

Bitcoin SV is in the process of preparing to deploy the first hard fork, called Genesis, scheduled to take place before February 4, 2020. This hard fork is considered to be an important milestone in the journey of Bitcoin SV to restore the original Bitcoin protocol. On December 6, the BitcoinSV Node team just released the first beta version for the Genesis hard fork.