1/ With a turbulent 2022 in the rear view, #Bitcoin miners are on the retreat. After tipping ~265 EH/s last month, hashrate has tumbled -6% 📉
In response, we saw a massive -7.3% network difficulty adjustment, the largest downtick since the Chinese miner exodus of summer '21.
2/ Still, miner margins have been compressed all year, so the burst of hashrate in late Q3 is a bit mysterious.
One theory offered by @Data_Always is that miner rackspace was rapidly reallocated from GPUs to ASICs in the wake of the Ethereum Merge.
3/ As explored in the Q3 @coinmetrics mining special, only 25% of Ethereum's hashrate found a home in its estranged sister chain #ETC, giving even more credence to the rackspace reallocation rumors.
4/ In any case, the stunning collapse of #FTX (and subsequently, BTC price) in November curbed miners' chances for a Q4 comeback.
Even after the downward difficulty adjustment, hashprice (daily revenue per unit of hashrate) sits stubbornly near 2022 lows at $0.06 per TH/s/day.
5/ We can also see miner capitulation playing out in active addresses numbers. As a reminder, miners are typically identified on-chain as "1-hop" addresses, linked to "0-hop" mining pools by at least one payment.
6/ Active mining addresses typically peak near cycle tops, with slow-moving hardware deployments arriving late to the party as speculation dwindles.
Since a (unusually subdued) peak in '22, the # of monthly active 1-hop addresses has fallen 50%, reaching lows not seen since 2011
7/ The recurring trend of miner capitulation indicates the industry still has some progress to make when it comes to proper risk mgmt.
Luckily, service providers like @LuxorTechTeam now offer innovative hedging instruments, i.e. hashprice Non-Deliverable Forward (NDF) contracts
8/ The mining pool landscape has also seen some dramatic changes through the course of 2022.
Last quarter, Poolin's fall from grace showed how quickly fortunes can change for mining pools, underscoring miners' ability to quickly redirect their hashrate.
coinmetrics.substack.com/i/75132155/poo…
9/ Unfortunately, Poolin's collapse also increased the concentration of hashrate, w/ 3 mining pools (Foundry, AntPool, & F2Pool) collectively controlling > 50% mkt share.
U.S. pool Foundry took the #1 spot in early '22, overtaking the longstanding leadership of Asia-based pools.
10/ Notably, @FoundryServices has maintained its dominance as the #1 mining pool without minting a single empty block in 2022— a testament to the pool's block templating prowess.
11/ While uncommon, empty blocks cost ₿. In between blocks, pools scramble to build a new template w/ high-paying transactions.
During this short period, pools continue to throw off hashrate, so there's a small chance of a block being mined before a template is fully assembled.
12/ So far in '22, Foundry has constructed block templates quickly enough to beat the clock⏱️
With @StratumV2, however, miners will have the option to build their own templates. How this will affect empty block frequency (& the impact on the pool landscape) remains to be seen.
13/ Meanwhile, the mempool remains muted, w/ the exception of a prolonged period of congestion in November.
A flood of 12-15 sat/vB transactions (allegedly a Binance wallet reshuffle) spurred a spike in the average mining reward, with F2Pool netting 0.73 BTC in fees for 1 block.
14/ It wouldn't be a bear market without a bit of vicious community in-fighting about seemingly minor technical details🐻
Many BTC users likely haven’t even heard of Replace-by-Fee, a tx type allowing a prior payment to be re-broadcast w/ a higher fee.
bitcoinops.org/en/topics/repl…
15/ Replace-by-Fee (RBF) was designed to help relieve mempool pressure in periods of congestion.
However, many warn the feature is easy to abuse— users can also “reverse” 0-conf txs by re-broadcasting a payment w/ their own address as the recipient.
16/ Since their introduction in 2016, RBF-enabled tx have become increasingly common.
However, w/ the controversial release of Bitcoin Core 24.0, Replace-by-Fee is the default setting for mempool policy.
17/ While this change has seen plenty of pushback from the merchant community, devs stand firmly behind the upgrade, arguing that 0-conf tx have never been safe to accept in the first place.
If you want instant settlement, Bitcoin’s #LightningNetwork is the better option.
18/ Miners have little incentive to worry about Replace-by-Fee fraud. Higher fees simply boost miners' bottom lines, no matter where they come from
However, tracking RBF tx could also make block templating more complex, forcing miners to monitor the mempool more than ever before
19/ Looking ahead, 2023 should be another rollercoaster year for miners, especially w/ rising energy prices & shifting political winds.
New York recently enacted a 2-year PoW moratorium, while Texas continues to embrace the grid-balancing benefits of Bitcoin mining.
20/ No matter what the coming months hold for #Bitcoin mining, @coinmetrics will be here to report the facts— on-chain, in the mempool, and beyond 🫡
If you enjoyed this thread, be sure to check out the full breakdown in this week's SOTN Mining Special ⛏️
coinmetrics.substack.com/p/state-of-the…
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