Bitcoin : A (Hopefully neutral) game-theoretical and mathematical look at the upcoming hard-fork.
Hey everyone, November is here and a hash war on BCH is likely to heat up soon. I wanted to take time to post about the possible outcomes of the chain split and hash war from a game-theoretical standpoint.
Realistically, there are only 3 major outcomes:
1) SV “wins” by preventing any form of replay protection while having more hash power.
2) SV splits and two different chains are formed – one off of the SV specification and one off the ABC / BU specification.
3) ABC / BU win by SV disallowing a hard fork while alternate clients maintain a higher hash rate.
**The Mining Pools**
So first, let’s talk about mining pools, their interests, and their hash power.
We know that Coingeek, SVpool, okminer and BMGpool are the pools essentially rooting for SV to win. All of these pools have at least some affiliation with Craig Wright or nChain.
As of this morning, here are the Bitcoin Cash mining statistics for these pools:
BMG Pool: 620EH/s
~~okminer: 237PH/s~~ *Edit – okminer appears to be onboard with ABC and I may have grouped them into SV improperly*
***Total SV Hashrate: ~~1.52EH/s~~ 1.29EH/s***
In comparison, several pools have indicated support for ABC / BU including:
***Total ABC / BU hash rate: 934PH/s***
I would consider BTC.top a wild card as they have not announced explicit support, however [they have indicated they use ABC for BCH mining in the past with their mining preference being primarily financial](https://www.trustnodes.com/2017/07/23/btc-top-will-mine-bitcoin-cash-based-price), they have also [announced a goal of having 100k BCH on hand.](https://www.reddit.com/r/btc/comments/779mhz/the_owner_of_btctop_said_he_wants_to_have_100k/). My instincts tell me they will want to protect their current interests and will likely maintain being on the ABC chain. Also, a non-split chain creates a hash vacuum that they will be happy to fill.
BTC.top: 369 PH/s
***Total confirmed and likely ABC / BU hash rate: 1.30EH/s***
Sources: [BTC.com BCH pool statistics](https://bch.btc.com/stats/pool?_ga=2.21581947.1159604022.1541371371-399531473.1534884013); [Coin.dance BCH pool statistics](https://cash.coin.dance/blocks/today).
**The Other Chain**
“But wait,” you say… “with those statistics, it’s pretty clear that SV is going to win the hash war.” Not by a long shot. In fact, right now there is nothing to lose and everything to gain by swapping hashrate between the two primary SHA256 chains: BTC and BCH.
Because the hash war has not yet started, we should consider each mining pool’s contributions to BOTH SHA256 chains.
Let’s start with SV’s contribution to the BTC chain:
BMG Pool: 0H/s
***Total SV Hashrate available: 1.52EH/s***
In fact, the SV pools appear to be blindly mining BCH regardless of price. At best, this is absolute faith that the BCH chain is and will be superior. At worst, this is the owners of the SV pool economically pushing hash power off of BCH to unfairly try and convince people “who’s is bigger.”
Because there is currently nothing economic at stake, some of the pools that allow chain switching have substantial hash rate on the other chain. Let’s take a look at that:
**Total additional confirmed ABC/BU hash power available: 22.2EH/s**
Again, BTC.top may stick their horse in this race, so let’s include some wild-card stats too:
***Total confirmed and likely ABC / BU hash power available: 28.4EH/s***
Sources: [BTC.com BTH pool statistics](https://btc.com/stats/pool?pool_mode=day); [Coin.dance BTC pool statistics](https://coin.dance/blocks/today).
**Economic Game Theory and Idealism**
I’ve heard from a few places that we can’t count on pools to act out of idealism, and I think for the most part those concerns are correct. I also think there are non-idealistic reasons some pools have for mining BCH at a slight to moderate economic disadvantage. I also forsee an economic hash vacuum being created that will naturally be filled by miners at an economic *advantage.*
***First off, let’s talk about Bitmain:***
Bitmain has a relatively firm say in what and how the AntPool and BTC.com pool mine. They also have given investment startup to ViaBTC so it’s likely they have serious pull there too.
[According to leaked documents, Bitmain has previously reported owning over 1M BCH](https://www.chepicap.com/en/news/2856/bitmain-holds-1-million-bitcoin-cash-and-hardly-any-eth.html). A hard-fork that is perceived as malicious would undermine the value of their insanely sizable investment in BCH. I think it would be naive to believe that Bitmain won’t temporarily be willing to mine even at a slight to moderate economic disadvantage to quash an SV chain. We don’t have to rely on altruism to come to this easy conclusion.
***Chance of Bitmain switching hash power to BCH during a contentious hard fork: Virtual guarantee***
If you include only BTC.com and AntPool, Bitmain currently has 14.8EH/s at their disposal. It would take 15% of their hash power *alone* to guarantee a safe 60% majority over SV.
If you include ViaBTC, their mining power increases to 20.5EH/s and only 11% of their resources are needed to guarantee a safe 60% majority.
On top of that, a hash war with no replay protection means that one chain wins everything and one chain loses everything. If Bitmain points 2.28EH/s of their mining power at BCH (ABC) and only accept non-SV blocks, it will orphan every SV block that is mined. ***The 1.52EH/s of mining power for SV is effectively worth nothing which actually leaves more room on the main BCH (ABC) chain for other miners to come in at an economic advantage.***
Let’s even assume that the price of BCH reduces back to the ~$420 per coin rate of a few days ago and the hash-rate follows. The hash rate at that time was around 3.3EH/s meaning that not only could Bitmain come in with 2.28EH/s to guarantee a lock, but another 1.1EH/s would *still* follow in its footsteps at an economic advantage. This is the hash vacuum I was referring to that would be filled due to SV mining at a total loss.
This scenario would hurt SV pools (potentially) exclusively.
Even with Bitmain pitching in hashrate by itself, SV cannot compete.
As an additional note, The current total BCH network hashrate as of today is 4.6EH/s which means that SV doesn’t even control a majority at the current economic equilibrium.
***Next up, we’ll discuss Bitcoin.com***
While it’s my current understanding that Roger Ver does not directly make mining decisions about the Bitcoin.com mining pool, he will probably have a clear influence.
I don’t know if he’s disclosed his BCH holdings publicly, but I believe it’s safe to assume his holdings are substantial.
I think he would have enough influence that either he could have the Bitcoin.com mining pool mine at a slight economic disadvantage -or- he could provide a subsidy out of his own pocket temporarily and still have a long-term economic advantage.
***Chance of Bitcoin.com switching hash power to BCH during a contentious hard fork: somewhat likely for protective reasons alone, even more likely for economic reasons.***
Bitcoin.com alone accounts for 1.66PH/s of hashing power. They couldn’t gain a 60% majority themselves, but if they point all hash power at BCH, they alone could squeak out a 52% Majority.
Because this would require all of their hash power with only a slight hash advantage, they do run the risk of getting unlucky for a substantial period of time if they go it alone. With that being said, even with the tiniest bit of help, the ABC side of the chain gains a clear majority.
/u/MemoryDealers – care to comment on the intended hash distribution of the Bitcoin.com pool? I’ll gladly update to directly link your comment for visibility in return.
***The final pool to discuss (as well as being the biggest wild-card in the ABC bunch) is BTC.top.***
BTC.top controls 6.18EH/s of hashing power.
While their motives seem economic in nature, their goal of owning 100k BCH means they likely also have a substantially nest-egg to protect. In general, they seem to have just gone-with-the-flow in the past, and could very well chose to do the same thing here.
***Chance of BTC.top switching hash power to BCH during a contentious hard fork: They will be happy to fill the economic vacuum that SV mining at a total loss creates.***
If BTC.top chose to outright protect the ABC/BU side of the chain, they can gain a safe 60% hashing majority with ~38% of their total available hashpower. More likely, I think they just happily fill out any remaining economic advantage from Bitmain and/or Bitcoin.com protecting their own interests.
**So what the heck is going to happen?**
Well, that depends.
Right now, SV hasn’t shown that they have the hash power to even gain a majority hash of the current BCH network. Their pools were temporarily close to or above the 51% mark at the economic equilibrium of the lower $400-$450 price range, but as of today, they’re only showing around 38% of hash power.
If SV has hash power offline or if they can get additional pools to use SV and mine BCH exclusively, our equations *may* change some… but I’m highly skeptical.
I find it unlikely that SV-based miners have thousands of peta-hash worth of miners sitting idly waiting for the hard-fork. Leaving that many miners idle for half of a month would effectively be the same as lighting millions of dollars in cash on fire.
My estimation is that to even have a chance, SV would need at least half of the hash power of Bitmain as that would force them to *start* to make some non-ideal economic decisions.
Even ignoring ViaBTC, that would require around 6EH/s remaining idle.
6EH/s of hash power is currently worth around $1.5M USD per day.
This would also require almost half-a million units at a start-up cost of around $3.1B (assuming Antminer S9s). I find it unlikely that an instillation that large will possibly be installed in the next 10 days.
I find the prospect of that many offline or to-be-installed miners insanely unlikely.
With that being said, it’s fairly clear that SV will almost certainly not attain majority hash-power.
They are highly likely to not even reach the point where they make it economically disadvantageous to mine BCH to protect the primary (ABC / BU) chain. In fact, they likely make the prospect *better.*
ABC / BU would be at no obligation to implement replay protection as they will likely have majority hash-rate with no economic disadvantage.
While I think it’s their best option, If SV chooses to implement replay protection and officially split, I think they shoot themselves in the foot economically. There may end up being two chains, but my impression is that most people with mining or economic interest are going to follow the ABC/BU chain. I think this makes the price of SV as a separate entity decline very substantially.
If SV chooses not to implement replay protection, they almost certainly get out-hashed until they’ve suffered enough economically to throw in the towel.
**An additional note about the recent price increase**
Many people are stating that the price increase is due to the prospect of a chain split. It is my impression however, that the former price depression was due to the perceived mismanagement that would occur as a result of having only one client (SV) and one primary entity (SV-controlled pools) essentially dictate changes.
I think it’s important moving forward that we maintain a diverse and non-centralized array of wallet projects who effectively communicate potential protocol changes to each-other. I also think it’s important moving forward that we maintain a diverse interest of independent pools.
While I don’t think BCH is 100% there yet, I’m pretty sure the result of the November hard fork will reveal that we’re headed very much in the correct direction.
I think the renewed price confidence is due in part to the superficial reason that “oh, look… there will be two chains” and for the non-superficial reason that the project still very much appears to be headed in the correct direction.
**TL;DR – ABC has as much as 28.4EH/s ready to go while SV sits around 1.52EH/s. All signs point to ABC/BU being a virtual lock for November 15th**
I still recommend paying attention to total pool hashrates and how they shift between BTC/BCH in the upcoming days, but it doesn’t look good for SV.
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