Binance Research: Non-Economic Motives Lead Miners to Mine Bitcoin Cash and Bitcoin SV

December 19, 2019, by Marko Vidrih on ALTCOIN MAGAZINE

The employees of the research unit of the Binance cryptocurrency exchange analyzed the trends in the space of Bitcoin mining and came to the conclusion that its participants often made not the most optimal decisions from an economic perspective. So, some of them preferred to allocate their resources to add blocks to the Bitcoin Cash (BCH) and Bitcoin SV (BSV) chains, sacrificing the profitability that they could have had when working with BTC.

“Most of the coins resulting from forks share the same hashing function, making them interoperable from a mining perspective,” the authors explain.

BSV mining in the first half of 2019 cost miners significant lost profits, they say. The ratio of the reward to the mining difficulty in the BTC and BCH chains turned out to be less striking, however, BCH also demonstrates a decrease in profitability over certain periods of time relative to Bitcoin.

According to the authors of the report, such factors as liquidity conditions, low development of derivative products, additional rewards from joint mining and differences in the structure of mining pools could influence the decisions of miners when choosing a chain.

“However, none of these reasons have fully explained the persistence of Bitcoin SV’s sustained difficulty with its significantly lowest mining profitability in the first half of 2019. As a result, this finding posits whether mining activity might be irrational, possibly owing to political factors or other non-economically driven forces that are beyond the scope of this report.”

In particular, we are talking about the so-called “hash war” between the BCH and BSV camps, which arose against the background of the separation of the second cryptocurrency in November 2018. Since October 2019, analysts have noted a violation of this trend, when the levels of the ratio of rewards and complexity of BCH and BSV began to approach the indicators of Bitcoin.

Finally, this report highlighted that prices remained the main driver of how much computing resource is allocated to secure a PoW blockchain and that coins with the same hashing function were essentially competing for resources to secure their network.

“As halving events have never occurred on neither Bitcoin Cash nor Bitcoin SV, it remains to be seen how such an event might impact their respective mining profitability and to what extent it will test the sustainability of their underlying economic incentive reward schemes. Hence, a few questions should be raised: Can competing PoW blockchains remain secure? Will some miners remain political after the halving events?”- the authors conclude.

Author: Marko Vidrih