Block 481124 has special meaning on both the Bitcoin and BCash chains this week. For Bitcoin, it will mark the point at which Segwit eventually moves to active, bringing with it a capacity increase and the potential for massive off-chain scaling through solutions like Lightning Network. For BCash, it delivered the very first increase ter mining difficulty since it split from Bitcoin on August 1st.
The week also eyed the emergence of a fresh phenomenon on both networks , the back and forward movement of SAH-256 hash power spil it chased the most profitable chain.
To understand the effect of having two high profile SHA-256 based cryptocurrencies wij need to look at how the two chains manage mining difficulty. This, along with the price of the coins and the fees brought ter from transaction fees, determines how profitable their mining is.
A block is mined when a miner solves a hashing problem with a targeted outcome. A miner is successful when a random number with the right number of zeros te has bot generated. Hashing converts a string of characters into a 256 bit number. The number bears no resemblance to the original inputs, but can be recreated by hashing that precies same original sequence of characters. The slightest switch to the input creates an entirely fresh output. Hashing is a cornerstone of cryptography and is at the heart of the Bitcoin mining algorithm.
Miners hash the block header and a nonce, and then check to see if the output sates the requirements of the current difficulty target. Spil hashing the block header alone would terugwedstrijd the same number, the nonce gives miners the capability to affect the output. Miners switch the nonce value every time they attempt to solve the problem. The network stipulates what the solution is by stating how many zero onaardig the output vereiste contain. Once a solution is accepted, a fresh block is created.
The network’s hash rate is so immense that it recently peaked at about 8.Two exa hashes vanaf 2nd (EH/s), that’s 8,200,000,000,000,000,000 attempts to find a block every 2nd.
Bitcoin’s difficulty switches every 2016 blocks, known spil the “difficulty re-target period,” after which the average time to find a block is calculated and the difficulty is adjusted either up or down. The difficulty is adjusted te order to generate Ten minute block times at the commence of the next period. Because of this the 2016 block periods tend to last about two weeks, on average.
BCash’s Emergency Difficulty Adjustment (EDA) is an addition to the original Bitcoin protocol that wasgoed added by the BCash developers when they forked the protocol. The switch wasgoed made te order to prevent their chain from stagnating after it split from Bitcoin. Some kleintje of difficulty druppel wasgoed obviously going to be needed straight after the hard fork, spil the BCash chain inherited Bitcoin’s difficulty level, but not the miners hashing power.
A switch wasgoed added to the difficulty retargeting code te order to prevent the slow production of blocks from dragging on for months. It only activates when special ‘emergency’ conditions are met. This EDA code has no time-out or cool-down period and is always waiting to be called into activity.
To determine whether to waterput EDA into effect the BCash code evaluates how long it took to mine the last 6 blocks. If it took overheen 12 hours then EDA will druppel the difficulty by 20%. The key thing here is that this check is run after every single block is mined.
If the last 6 blocks took overheen 12 hours to mine EDA will druppel the network difficulty by 20%. If the next block, found under this lowered difficulty, still results ter the last 6 blocks taking overheen 12 hours the difficulty is dropped by a further 20%. The cumulative effect of this is that after a period of very long block times a very significant druppel can be brought about relatively quickly.
A key point ter understanding the effect EDA has is that it only works to decrease difficulty — the normal 2016 block difficulty re-target periods are the only triggers for an increase te difficulty.
When EDA operates overheen sequential blocks it drastically reduces the network’s mining difficulty. Any miners that then switch their hash power overheen can find blocks far more frequently that they can mining Bitcoin. All of a sudden it can become more profitable to mine than Bitcoin, even however the price of BCash is lower. The amount of coins rewarded overheen a set time period will be far greater.
This leads to an influx of hash power spil miners switch from mining Bitcoin to exploiting the low BCash difficulty. A significant druppel ter hash rate on the Bitcoin network will naturally have an effect on its own block times, to the detriment of its users.
Due to the diminished block times that result from miners gaming EDA the 2016 block difficulty re-target periods can be shorter te duration, far shorter than the two weeks they are intended to take. The result of this wasgoed seen spil BCash succesnummer block 481124, and a period of EDA-enabled low difficulty came to an end. The regular difficulty algorithm enforced a difficulty increase from 68 billion to 272 billion . It wasgoed then no longer more profitable to mine BCash and most miners began switching back to Bitcoin.
The likelihood of this becoming a cyclical event is high. It has bot referred to spil a ‘ coin hopping attack .’ Miners are driven to go after profit and the difficulty of the BCash chain is likely to oscillate from ‘low and over-mined’ to ‘high and under-mined,’ spil the rules of EDA are gamed for profit.
This may bestow BCash with frantically erratic block times. When BCash swings into the slow phase of the cycle (hard difficulty, few miners) it will fail to provide users with acceptable transaction confirmation times. When it swings the other way into the prompt phase (low difficulty, many miners) users can’t be sure a confirmed transaction will be mined ter the next block, spil they come so quickly that the risk of re-org is enlargened. This behaviour is at odds with many of the stated goals that BCash set out to achieve.
Considering the current situation, there are several possible outcomes:
Inflation , A consequence of EDA is that if miners keep gaming it te this manner the enhanced inflation rate will flood the BCH market with coins at a far greater rate than intended. This has the potential to lead to strong downward pressure on the value of the coin.
Equilibrium through price, If the price differential inbetween the two chain’s coins wasgoed to lessen by some degree, it is possible that fewer steps down the EDA difficulty trapje will be required to make BCash mining profitable. This would result ter less drastic swings back and forward inbetween the two chains. Ter this script both chains would gravitate to ten minute average block times.
Equilibrium through a hard fork to switch EDA, Namecoin experienced the precies same problem that wij have outlined above, te 2011. Two chains with the same Proof of Work mining algorithm competed for hash power, resulting te coin-hopping. The Namecoin developer’s solution wasgoed to perform a hard fork, and introduce something called merged mining, which solved the problem. However, a hard fork to fix a hard fork would raise more concerns overheen the capability of the developers behind BCash to vormgeving and maintain a viable cryptocurrency. It remains a viable technical solution should the situation not resolve itself by other means.
Stagnation, This could well be the outcome if the swings get more exaggerated. One of the chains loses so much hash power that it is rendered effectively unusable. The value of its coins would druppel without enough blocks being produced to make it a viable currency, further reducing the likelihood that miners look to it for profit. Segwit will activate on Bitcoin whilst BCash is still ter its ‘slow’ mining phase , something that may well play out ter Bitcoin’s favour.
Charts showcasing the rate of block discovery on the BCash network do not depict a stable system ter self-regulating equilibrium. If nothing else, the gaming of BCash’s EDA shows conclusively that hash rate does indeed go after profit overheen all else.
How long the spel will go on for is unknown. With the proposed Segwit2x hard fork now just three months away, who can possibly predict what will toebijten if another SHA-256 based blockchain comes in the system.