Bitcoin hashrate continues exploding as Bitcoin Cash’s stagnates
BCH miners might be switching off before the triple fork, but price actions explain it better.
Hashrate measurements are never exact. Rather, they're just estimates based on the average number of hashes in a given time. Hashrates will vary wildly hour by hour and day by day, but the tools that measure them aren't pulling in a constant data feed. Most short-term hashrate changes can be put down to these wild hour-by-hour fluctuations and to the hashrate just happening to be unusually high or unusually low at the time the data was pulled. It's really only possible to draw conclusions in hindsight, when you can start smoothing out results with moving averages and charting hashrate trends in the long run.
It's not possible to look at moves over just the last couple of days, for example, and conclude that something big is going on.
Here's bitcoin's hashrate over the last 30 days, smoothed out with 7-day averages.
Peak to peak, that's about a massive 20% increase. Even if the major increase of the last couple of days is just a data oddity that disappears in coming days as more numbers are thrown into the mix, it's safe to conclude that the last month has seen a major influx in bitcoin mining power.
But counter to what one would expect from a healthy and growing network, Bitcoin Cash's hashrate has actually decreased recently, taking a dive at the end of July and never really recovering, even while the bitcoin hashrate climbed.
This might be a combination of new machines coming online as new miners jump in, existing miners adding capacity and old miners switching on their machines again as bitcoin prices rise and mining becomes profitable again.
It might also be a shift of mining power from Bitcoin Cash to bitcoin, ahead of the rival network's planned triple-fork stunt. The move has raised fresh doubts about the longevity of Bitcoin Cash and the wisdom of holding BCH, so it would be reasonable to expect a shift in mining power to bitcoin.
But it could be just as easily explained by short-term profitability.
Over the last month, bitcoin has slumped from $7,000 to $6,000 then back up to $7,000, while Bitcoin Cash just continued tumbling from $700 to a bit under $500, without the kind of price recovery that bitcoin had.
Now consider the usual mining profitability ratio between BTC and BCH. As you can probably see, it tends to consistently run 1:1 at any given time. Miners happily flip between the two coins as prices and profitability changes, with corresponding effects on hashrate, mining difficulty and profitability.
The result is a self-balancing act where price changes are one of the main catalysts for shifting hashrates. A lower hashrate increases mining profitability, but a lower price decreases mining profitability. So when mining profitability increases, the hashrate increases and then profitability decreases again.
The profitability ratio will always pull back towards 1:1, which affects and is affected by the hashrate. Price is the only external factor.
Functionally, this mostly means prices drive hashing power. Think of the 1:1 BTC to BCH mining profitability ratio as the golden rule to be maintained. When BCH prices drop relative to BTC, its hashrate also has to drop in order to maintain that golden rule.
With that as a rule, prices alone can explain the hashrate disparity over the last month.
Someone wishing ill on the Bitcoin Cash network might see the BCH hashrate decrease and BTC hashrate increase as a sign that miners are losing confidence in Bitcoin Cash ahead of the fork, and that it's doomed to end poorly. It certainly might end poorly, but it still looks like business as usual for miners so far.
The price action might largely explain bitcoin's more sharply growing hashrate over the last month, but that's kind of just what bitcoin does – it's always adding more power.
The unusually sudden rise in the last day or two alone probably can't yet be ruled in or out as one of those weird anomalies.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.