The bitcoin blockchain continues to grow and increase its strength. Its hashrate and mining indexes have recently reached the highest peaks of all times. But what are the incentives to ensure a public blockchain? In addition, how does the network growth affects the bitcoin decentralization? All these questions were addressed in the survey “Exploring the Coinbase”, developed by Bitcoin Suisse.
Recently, the bitcoin hashrate has reached a record of almost 79 Exahashs per second (EH/s). This means that currently it is spendt 400% more to purchase equipment and energy to produce bitcoin than in 2017.
The conclusion of the Bitcoin Suisse report is that the Bitcoin hashate requires scarce resources. Therefore, the company points out that anyone who wants to create a new cryptocurrency must find a way to establish incentives that make it worth the investment in capital and work to enable a new blockchain.
Incentives to blockchains include reward
The document emphasizes that blockchain security is unarguably essential for a network that captures hundreds of billions of dollars in value. According to the study, it is necessary that the protocol ensures that the players benefit more from a safer and more transparent behavior.
“But safety is not for free”, the report states. The company emphasizes that to encourage the participation and thus strengthen the network, most public blockchains pay a reward by blocks to the miners (proof of work) or to the validators and counterfeiters (proof of stake).
In terms of global security of the chain, the bitcoin also reached the highest values of all times in July. For the bitcoin, more than one year of mining in full capacity would need to rewrite all the blocks. As such, the bitcoin network security is stronger than ever.
Hashrate is not a good predictor for prices
The report also states that scale economies encourage centralization, which is performed perpendicular to the decentralized ethos associated with cryptocurrencies and to the blockchain technology.
However, there is a second one and even more centralizing force that directs bitcoin mining. Electricity supplies are located in specific geographic areas, due to infrastructure, regulations and resources. Most miners are in China due to the availability of coal and hydroelectric thermoelectric plants, whose production cost is lower. There is also an emerging trend of miners going to Texas to seize the cheap natural gas from the USA.
For that reason, the report concludes that many mining projects will fail leaving only a few large mining companies located near cheap electricity sources.
The report also concludes that despite the strong correlation between the bitcoin hashrate and the price, the relationship is not causal. Therefore, it is not a good predictor for the price movement in the short term. That’s because the hashrate seen in the bitcoin blockchain today is often the result of the investment decisions in mining taken between nine months to a year earlier.