Miners maintain the security of the network by providing computing power and are compensated.
But at the same time, miners have costs. To maintain mining, they must convert the bitcoins in their rewards into cash to pay the costs.
The total amount of computing power provided by all miners can be estimated by a metric called the hash rate, which can be seen as the competitive impulse of miners.
The hash rate depends largely on the market price of Bitcoin (that is, the income of miners). When the price is higher, the rewards miners receive are more generous, and more computing power will be invested to increase the hash rate.
Therefore, mining will also experience cyclical changes with the bull and bear markets of the Bitcoin market.
Mining hardware is becoming more and more efficient, starting with CPUs, moving to GPUs, and now to programmable logic arrays (FPGAs) and application-specific integrated circuits (ASICs).
Therefore, we need to observe many miner-related indicators using two different scales, linear and logarithmic, to better understand their trends and changes.
Miners gain the right to keep accounts by solving complex mathematical puzzles and get paid for it.
More computing power will allow mathematical problems to be solved faster, and then increase the difficulty through the adjustment mechanism of Bitcoin. With the development of technology and the improvement of hardware equipment, the computing power will naturally become higher and higher, and the mathematical problems will become It's getting harder and harder.
Hash rate can be understood as the computing power jointly provided by miners, representing the speed and efficiency of solving mathematical problems.
As the price of Bitcoin increases, miners' income increases, which in turn attracts more people to participate in mining and provides more computing power. This is the impact of market price on hash rate.
The mining industry also goes through cycles of ups and downs, sometimes bull markets, sometimes bear markets.
Mining difficulty can be thought of as the complexity of the puzzle that miners must solve. It is a self-regulating algorithm that adjusts the complexity of the puzzle based on the speed of mining (called difficulty adjustment). Mining difficulty is adjusted approximately every 2016 blocks (approximately 14 days).
When more miners or computing power join the network, blocks will be discovered faster than 10 minutes, at which point the mining difficulty will increase.
If it is slower than 10 minutes, the mining difficulty will be reduced at this time (easier puzzle).
Through constant adjustments, the time interval of each block is kept close to an average of 10 minutes. No matter how much mining power is online, the time interval of the block is consistent.
Whenever a miner finds a new block, they encode the timestamp into the block header. The Bitcoin protocol adjusts the difficulty by measuring the average time between blocks within a 2016-block difficulty window:
– If the average block interval is faster than 10 minutes, the difficulty needs to be increased.
– If the average block interval is slower than 10 minutes, the difficulty needs to be lowered.
Below we can see that for most of Bitcoin’s history, the mean block interval has been below the target.
This is the result of mining expansion and increased efficiency leading to faster block speeds, resulting in increased difficulty.
However, in some cases, the average block interval will be higher than the target value for a long period of time, which usually occurs in bear markets or unexpected events (such as the bloodbath in May 2021). This indicates that miners are leaving the network, causing blocks to be produced more slowly.
Computing power is the most commonly mentioned mining metric.
It measures the estimated number of SHA256 calculations performed by all miners per second. The unit of computing power is hashes per second (H/s), but is usually measured in terms of one trillion hashes per second (TH/s, one trillion hashes) or more recently one quadrillion hashes per second ( EH/s, 10 billion hashes).
The computing power of 220 EH/s is equivalent to all 7.9 billion people on earth guessing SHA256 hashes 278.5 billion times per second!
However, global computing power does not really count the computing power of mining machines. It is an inferred value, which is a value inferred through the difficulty of mathematical problems and timestamps.
Miners' income is another important evaluation indicator.
Miner income comes from two sources: block subsidies and transaction fees.
They are all priced in Bitcoin (BTC), but there is a time when they are issued, so it is easy for us to calculate the legal currency value through the timestamp and the price at that time.
Transaction fees tend to spike during bull markets due to more users, increased network congestion, and increased urgency for transaction confirmations.
During calmer periods, transaction fees typically fall because there is less congestion on the network, which typically occurs during more bearish periods.
Over time, this indicator will also gradually decrease due to the halving.
In the chart below we can calculate the revenue in USD that is paid to miners on a daily basis.
Use this metric to evaluate the network security budget a protocol pays miners.
We can also see that over time, although Bitcoin block rewards are decreasing (due to the halving event), miner revenue in USD terms increases as the Bitcoin exchange rate rises against the USD.
This dynamic also includes transaction fees paid, which tend to fluctuate with market cycles.
Mining is an extremely competitive industry that requires careful management of costs (power, hardware, labor, etc.), financing (debt, equity), and expansion and upgrades of mining equipment in line with favorable market cycles.
Bull miners have more fiat income and therefore more opportunities to invest in more or newer generations of mining equipment. This leads to an increase in application computing power, which in turn leads to an increase in difficulty.
In a bear market, miners earn less in fiat but still have to pay fixed costs. In a prolonged bear market, this could lead some miners to temporarily or permanently shut down some or all of their mining equipment. This leads to a reduction in application computing power, which in turn leads to a reduction in difficulty.
Next we introduce some other data related to mining
Difficulty Ribbon:
The difficulty strip chart compares mining difficulty across multiple moving averages: 200 days, 128 days, 90 days, 60 days, 40 days, 25 days, and 14 days.
Healthy hash rate expansion is manifested by fast moving averages (such as 14-day, 25-day, 40-day) rising faster than slower averages (90-day, 128-day, 200-day).
Contraction in the mining market manifests itself as the fast moving average falling faster than the slower moving average, even falling below the slower moving average during periods of extreme financial stress. This causes the difficulty strip to shrink and indicates a weaker and more stressed mining industry.
Miner revenue pre-Exahash estimates the approximate dollar revenue generated by each exahash of computing power applied to the Bitcoin network.
It is a comparison that measures the profitability and competitiveness of miner operations.
It allows them to assess expected revenue based on the amount of computing power they contribute to the network.
Miners also use this information to make decisions, such as upgrading hardware or adjusting mining strategies.
Puell Multiple is a metric that compares the current total daily revenue of miners to their average annual revenue.
During booms and busts in the mining industry, the Puell multiple reaches extremely high and extremely low levels respectively.
This metric shows how miners’ current income levels compare to their historical average earnings.
When the Puell Multiple is high, it means that the current miners' income is relatively high relative to their average annual income, and they may be in a prosperous mining market.
When the Puell Multiple is low, it means that the current miners' income is relatively low and they may be in a sluggish mining market.
Mining Pulse is used to track whether miners are producing blocks faster (negative values) or slower (positive values) than the target block time of 600 seconds.
This can help identify if stress is occurring in the mining industry.
When the Mining Pulse is negative, it means that the miner is producing blocks faster than the target time, which may mean that the miner is facing some pressure forcing them to mine at a faster speed.
When Mining Pulse is positive, it means that miners are producing blocks relatively slowly, which may mean that they are expanding their business and investing more resources to increase mining output.
Assume the target block time is 600 seconds, but in reality miners successfully produce a block every 500 seconds on average. This will result in a Mining Pulse value of -100 (500 seconds - 600 seconds), indicating that the miner is producing 100 seconds faster than the target time.
Assume that the target block time is 600 seconds, but in reality miners successfully produce a block every 700 seconds on average. This will result in a Mining Pulse value of +100 (700 seconds - 600 seconds), indicating that the miner is producing 100 seconds slower than the target time.
Hash Ribbons is a tool used to track the boom and bust phases of the mining market.
During market expansion, the 60-day moving average (DMA) of hash rate will rise faster than the 90-day DMA, while during market crashes, the 60-day DMA will drop below the 90-day DMA, indicating that the hash rate is in reduce.
Assume that in a booming mining market, the hashrate of the 90-day DMA grows by 10% per day (relative to the average growth over the past 90 days), while the hashrate of the 60-day DMA grows by 15% per day. In this case, we can see that the 60DMA rises faster, exceeding the growth rate of the 90DMA.
In a period of market collapse, the hashrate of the 90-day DMA fell by 5% per day, while the hashrate of the 60-day DMA fell by 10% per day. At this time, we can observe that the decrease of 60DMA exceeds the decrease rate of 90DMA.
Today’s article is quite large, but these data can help us more easily understand the impact of miners on the market.
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