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Will the halving of Bitcoin follow the fate of BCH and BSV?

April 24, 2020

With Bitcoin (BTC) halving in just a few weeks, anticipation seems to be increasing as Google Trends data for the event shows that online searches are reaching a record high. The Bitcoin block reward is halved according to that of Bitcoin Cash (BCH) and Bitcoin SV (BSV), in which miners shifted their computing power to the BTC chain.

Several cryptocurrency experts point out that halving could have a significant impact on BTC’s spot price. In fact, Bitcoin’s previous two halving times – November 2012 and July 2016 – each preceded a new BTC record price.

However, the situation on the conventional crypto market in 2020 is very different from the other two halves. The economic downturn caused by the current COVID-19 pandemic has contributed to stressors such as the 2018 bear market, hash wars and stricter government regulations.

The lessons from BCH and BSV halving

Will the halving of Bitcoin follow the fate of BCH and BSV?Will the halving of Bitcoin follow the fate of BCH and BSV?

As Cointelegraph previously reported, BCH and BSV halving took place this year from April 8-10since both chains reached the milestone of 630,000 blocks. This event triggered a 50% reduction in the block reward for miners in the two chains.

After halving Bitcoin Cash and Bitcoin SV, miners have reportedly transferred their computing power to the Bitcoin chain, which continues to operate under the 12.5 BTC block reward regime. The miners’ exodus led to a huge decrease in the hash rate for the BCH and BSV blockchains, while BTC’s share of the hash rate distribution among the three chains increased significantly.

The decrease in the hash rate also made both chains temporarily vulnerable to 51% attacks Theoretically, a dishonest actor who controls more than 50% of the network could have pushed back transactions and spent the currencies twice. Since halving, data from Crypto51.app – a platform that monitors the vulnerability of blockchains that proof-of-work as BCH for these types of attacks – has shown a 51% increase in the theoretical cost of an attack on both chains.

Despite the decline in the hash rate, miners with vested interests in both chains continued to devote their computing power to securing the networks. Given the significantly higher profitability of miners in the BTC chain compared to the other two networks, some cryptocurrency experts described the miners’ decision to stay in the BCH and BSV as “cryptosocialism”.

In an email to Cointelegraph at the time, Alex Speirs, head of communications at the Bitcoin Association, contradicted the concept of crypto-socialism and irrational mining. According to Speirs, the inventor of Bitcoin, Satoshi Nakamoto, the only intention was to consider block subsidies as a temporary reward for miners, with transaction fees being the real long-term incentive to stay online.

On the price side, the halving did not trigger any significant upward momentum, since both BCH and BSV declined after the event. Since halving, the BCH and BSV spot prices have lost even more ground and have fallen by 15% and 10%, respectively.

What about the distribution of the hash rate after halving bitcoin?

The halving of Bitcoin Cash and Bitcoin SV showed similar trends immediately afterwards, raising the question of whether both events were an early indicator of the halving of Bitcoin in May. Once Bitcoin is halved, all three chains work with the same block reward – 6.25 units of their respective local currency – With mining profitability, this is again likely to be the deciding factor in choosing the chain that miners choose.

Ali Beikverdi, CEO of Seoul-based BitHolla cryptocurrency exchange delivery service, believes miners’ response to bitcoin halving will be different than previous BCH and BSV halving. In a conversation with Cointelegraph Beikverdi emphasized that both BSV and BCH “extreme centralization“and are therefore not sufficient to be used as indicators of the likely outcome of the next BTC halving. Criticism of the perceived centralization of BSV and BCH tends to focus on the relatively larger block sizes of both chains compared to BTC.

This perceived centralization also covers the area of ​​mining. In the case of BCH, pools owned or supported by Bitmain heavyweights such as Roger Ver and Jihan Wu control most of the network’s hash rate distribution. The situation is very similar for BSV: pools dominated by Bitcoin SV advocates such as self-proclaimed Bitcoin creator Craig Wright and billionaire Calvin Ayre dominate the arena.

In fact, the block size debate was at the heart of the hard forks that led to the creation of Bitcoin Cash and Bitcoin SV. Theoretically, larger block sizes lead to greater centralization because the resources such as bandwidth and storage space required to run the nodes can restrict a significant number of network participants.

The exodus of BSV and BCH miners meant that Bitcoin’s share of the hash rate distribution in the three chains was between 96% and 99%.. More than a week has passed since the two halves, and miners continue to dedicate their hashing power to the BTC chain. After halving Bitcoin Cash and Bitcoin SV, some experts who spoke to Cointelegraph described shifting hash power to BTC as a temporary trend that would reverse once Bitcoin’s own block reward declined by 50%.

According to Sonny Meraban, CEO of Bitcoin of America – a US licensed operator of Bitcoin ATMs and cryptocurrency exchanges – the distribution of the hash rate will return to the pre-hashing paradigm. In a conversation with Cointelegraph, Meraban said:

“”There will likely be a realignment where we were before halving (that was about 3% for BCH and BSV, 94% for BTC), maybe a little more for smaller coins in the near future, but not much more. Hash rate balances have been optimized for profitability before halving, and the nature of the balances means that they should be back on the same balance sheet afterwards. “

The mining giants attack

The upcoming halving of Bitcoin is also a new challenge for miners, as energy efficiency is likely to be a major problem for market participants. As the block reward drops from 12.5 BTC to 6.25 BTC, Bitcoin miners will try to provide hardware solutions with a much lower watt to terahash ratio.

The watt / terahash ratio refers to the amount of electricity that a Bitcoin mining machine needs to complete a terahash of the network computer. Within the cryptocurrency mining market, this ratio is a measure of the efficiency of a cryptocurrency mining machine.

Chinese Bitcoin miners such as Bitmain and MicroBT have previously been reported to be ready to use new mining machines with lower W / T ratios, which means greater efficiency. Competitors are trying to take advantage of improvements in chip technology to offer configurations that ensure that gross profit margins do not decrease due to halving block rewards.

At the interface of lower block rewards and new hardware, Smaller miners could see their competitiveness increasingly under threat. Beikverdi highlighted the difficulties facing some BTC miners and stated that halving would displace some miners because “Bitcoin miners’ life cycles are always heavily affected after each halving, but tend to take some time than the miners are slowly unpacking their operations. “For bitHolla’s CEO, these miners with less capacity will not leave overnight. He added:

“It is important to note that miners do not have a quick way to continue their business and generally have to comply with their energy contracts. This means that it can take 6 to 12 months for miners to complete their energy contracts. No, it’s like with a normal operation where you pay from month to month. Mining typically involves longer business cycles of 6 to 12 months, which takes time for weaker miners. “

The current price wars in the oil market could also play a role in the fate of Bitcoin miners. An important business relationship between miners and energy producers appears to have developed recently, with the former becoming “last resort buyers” for the latter.

Using the example of the oil companies, some Bitcoin mining companies in North America have used excess gas from these oil sources as part of environmental containment measures to power their data centers. On April 20, 2020, the price of West Texas Intermediate crude oil futures fell below USD 0. If the price of other types of crude oil futures is affected, the wells could be closed in multiple places, which would affect the activity of some Bitcoin miners.

However, since China accounts for most of Bitcoin’s hash rate, a fall in oil market prices could have little impact on the business of BTC miners. While more than 71% of Chinese electricity is generated from non-renewable sources, this amount is split between coal and natural gas, to name a few.

Restore the hash rate and halve the hodling

In March, Cointelegraph reported that Bitcoin’s hash rate had dropped 45% from its 2020 peak. The reduction in computing power used to secure the network occurred at a time when BTC’s spot price was still recovering from the crash on “Black Thursday”, when Bitcoin briefly fell to $ 3,800 on March 12. 2020.

After the hash rate dropped, the Bitcoin network’s mining difficulty decreased by 16%, the second largest adjustment of the downward difficulty.. Blockchain mining fundamentals have improved significantly since the events of late March 2020, with the current hash rate almost wiping out the previous decline.

Related: The hash rate increase is related to the price of Bitcoin, but the halving means miners are taken out of the game

While the miners provide computing power to secure the network, Bitcoin holders appear to be saving BTC with the expectation of a price boom after halving. In early April, Cointelegraph reported that cryptocurrency exchanges register large exits, which could indicate a linchpin for long-term maintenance by bitcoin owners.

It is also possible that Some U.S.-based cryptocurrency holders have used their COVID-19 stimulus tests to buy Bitcoin. Coinbase data showed a four-fold increase in $ 1,200 cryptocurrency purchases, the exact sum of stimulus payments.

For Joe DiPasquale, CEO of Crypto Hedge Fund BitBull Capital, the upcoming halving will largely follow historical precedents and have a positive impact on Bitcoin’s spot price. In a conversation with Cointelegraph, DiPasquale commented:

“”The next halving of Bitcoin should have a positive impact on the price of BTC in the next 12 to 18 months. The last two halves experienced a massive price increase over the same period, with the first making a 1000-fold profit in a year, while the second took longer but delivered even higher returns. “

However, the head of BitBull Capital has tempered expectations by leading stricter regulations for cryptocurrencies and the emergence of digital currencies by central banks. Overall, however, he expects some upward momentum for Bitcoin and adds that “Halving is a positive milestone for Bitcoin, especially in contrast to inflationary fiat currenciesMeraban also offered a similar forecast for Bitcoin’s price performance after halving in May, saying:

“”BTC should see huge growth over the next 12 to 18 months, but it may be slower than people might expect;; In fact, we saw it back in 2016, but this time it could be slightly slower. Cryptocurrencies are markets that are driven more by retail than anything else. and there is still too much uncertainty about what the retail demand for cryptocurrencies will be in both Western and Asian markets in relation to the current global climate“”

Since the drop to $ 3,800 in mid-March, the market-leading cryptocurrency has been unable to regain its starting price of $ 7,200 in 2020. Bitcoin has seen over half a dozen rejections between the $ 7,100 and the $ 7,500 resistance levels, and each attempt has led to a drop to the $ 6,800 level.

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