Why miners could leave Bitcoin & where they might go
Not Your Keys. Not Your Bitcoin
With the launch of Bitcoin EFTs (spot just recently and future a while ago) we've seen a new Bitcoin emerge: The anti-Bitcoin BTC.
Bitcoin was launched soon after the 2008 financial crisis as an alternative to centralised and permissioned financial networks which were at heart of the crisis.
Bitcoin's core thesis was to be a peer to peer medium of exchange free of censorship and centralisation risk. As we had just witnessed with the systemic failure of the US financial system it was the right idea at the right time.
The whitepaper still makes for good reading https://bitcoin.org/en/bitcoin-paper
The phrase: "not your keys, not your bitcoin" sprung from this as a rallying cry for BTC adoption as it was good shorthand for Bitcoin's core value proposition.
So.. what is ACTUALLY happening with Bitcoin ETFs?
Bitcoin ETFs are investment funds that allow investors to gain exposure to the price of bitcoin without having to own or store the cryptocurrency.
There are two types of Bitcoin ETFs: futures and spot.
Futures ETFs invest in contracts that agree to buy or sell bitcoin at a future date and price, while spot ETFs hold actual bitcoin in custody.
Who owns the Bitcoin in the ETFs?
The Bitcoin in the spot ETFs is owned by the fund managers, who purchase and store it with a custodian. The investors own shares of the fund, which represent a fraction of the bitcoin held by the fund.
The Bitcoin in the futures ETFs is not owned by anyone, as the contracts are settled in cash and do not involve the delivery of Bitcoin.
Where does the buying of ETF shares happen?
The buying and selling of ETF shares happen on traditional securities exchanges, such as the New York Stock Exchange and Nasdaq. Investors can trade ETF shares like any other stock, using a brokerage account and paying commissions and fees.
How often do ETFs transact directly on the Bitcoin blockchain?
Spot ETFs transact directly on the Bitcoin blockchain whenever they buy or sell bitcoin to adjust their holdings according to the demand for their shares. This may happen daily or less frequently, depending on the fund's strategy and market conditions.
Futures ETFs do not transact directly on the Bitcoin blockchain, as they only deal with futures contracts that are settled in cash.
The problem with miner centralisation
Bitcoin miner centralisation is a term that refers to the concentration of hashing power among a few large mining pools or entities. Hashing power is the measure of how much computing power a miner or a pool contributes to the Bitcoin network, and it determines the probability of finding a valid block and earning the block reward.
As of January 2024, the Bitcoin network has a total hashing power of about 300 exahashes per second (EH/s), according to BitInfoCharts. The top five mining pools, namely F2Pool, AntPool, Poolin, BTC.com and Foundry USA, account for more than 60% of the total hashing power.
This means that these pools have a significant influence over the security and governance of the Bitcoin network.
51% attacks
A 51% attack is scenario where a single entity or a coalition of entities controls more than 50% of the hashing power and can manipulate the blockchain by excluding or reversing transactions, double-spending coins, or preventing other miners from finding blocks. This would undermine the trust and integrity of the Bitcoin network and potentially cause massive losses for users and exchanges.
The likelihood of a 51% attack on the Bitcoin network is very low, as it would require a huge amount of resources, coordination and incentives to pull off. Moreover, such an attack would be counterproductive for the attackers, as it would damage the value and reputation of Bitcoin, which they depend on for their mining revenue.
Furthermore, the Bitcoin community could respond to a 51% attack by changing the consensus rules or the hashing algorithm, rendering the attackers' hardware obsolete.
However, some factors could increase the risk of a 51% attack in the future, such as geopolitical tensions, regulatory crackdowns, technological innovations or market fluctuations.
For example, if a major mining country like China bans or restricts Bitcoin mining, it could cause a sudden drop in hashing power and make the network more vulnerable to an attack by another entity.
Or if a consortium of large Bitcoin ETF providers pooled their considerable capital to create a large mining pool, likely by buying several public/private miner companies (possibly at a time when the price of BTC had dropped enough to threaten many marginal miners with bankruptcy), they could wield oversized power on the Bitcoin blockchain.
Alternatively, if a new generation of mining hardware or software emerges that gives some miners an unfair advantage over others, it could create an imbalance in hashing power distribution and lead to centralisation.
Bitcoin core developers: The weakest link in the (block)chain
There is no definitive answer to how many core developers Bitcoin has, as different sources may have different criteria for defining who qualifies as a core developer.
However, one way to estimate the number of core developers is to look at the number of people who have commit access to the Bitcoin Core repository on GitHub, which is the most popular and influential software client for running Bitcoin nodes.
According to Bitcointalk.org, the maintainers with commit access to Bitcoin’s code currently numbers just three people: Wladimir J. van der Laan, Marco Falke and Michael Ford.
There are also two people with commit access who are not maintainers: Pieter Wuille and Hennadii Stepanov.
These five people are responsible for reviewing and integrating changes proposed by other contributors, who may number in the hundreds .
Some of these contributors are funded by various entities, such as educational institutions, labs, firms, or non-profit organizations , while others work voluntarily or independently.
The impact of the core developers on the Bitcoin blockchain is significant, as they are the ones who decide which changes to accept or reject, based on a consensus process that involves peer review and feedback from other network participants.
The core developers are also responsible for enhancing the efficiency and security of the Bitcoin protocol, as well as implementing new features or improvements that may benefit the network. However, the core developers do not have absolute power over the Bitcoin blockchain, as they cannot force anyone to use their software or follow their rules.
The users of Bitcoin Core only accept transactions for the block chain that they consider valid, which may differ from other software clients or implementations. Therefore, any change that the core developers propose must be compatible with the existing rules and expectations of the majority of the network, or else it may result in a fork or a split of the block chain.
Traditional Finance might want a very different Bitcoin to what exists now
It's key to note the wildly successful Ordinals upgrade was the work of one developer.
If traditional financial institutions were to allocate developer resources to contributing to Bitcoin development they would almost instantly outnumber those existing Bitcoin developers and wield considerable power.
It's not a stretch to see these new developers wanting changes to the Bitcoin blockchain to favour a Bitcoin that was less extensible and less open as that would reduce price volatility and be a much easier product to integrate with the existing EFTs. At that point a hard fork would be almost inevitable.
But this hard fork would likely be unlike any other in Bitcoin's history as now you would have most of the active Bitcoin holders (the ETFs) favouring a fork that was not favoured by most of the long term Bitcoin holders and developers.
You may also have this fork not be favoured by most miners.
ETFs mean very low transaction volumes.
Low transaction volumes mean low revenue for miners.
And block rewards (i.e., new Bitcoin) keep on halving at regular intervals.
If ETF providers favoured price stability (which all ETF products do) then you couldn't rely on large rises in the price of Bitcoin to compensate for the lost revenue from transactions.
Hard Forks: What are they & what's happened before
Bitcoin is a decentralized cryptocurrency that operates on a peer-to-peer network of nodes. Nodes are computers that validate transactions and maintain the security and integrity of the blockchain, which is a distributed ledger of all transactions that have ever occurred on the network.
Nodes follow a set of rules, or protocol, to communicate and reach consensus on the state of the ledger. However, sometimes there are disagreements among nodes about how the protocol should be updated or improved. This can lead to a hard fork, which is a radical change in the protocol that creates a new set of rules for the network.
A hard fork requires all nodes to upgrade to the new version of the protocol, or else they will be incompatible with the rest of the network. A hard fork effectively creates a new cryptocurrency, as the old and new versions of the protocol will have different transaction histories and balances.
Bitcoin LOVES a hard fork
According to Wikipedia , Bitcoin has been hard forked into two different blockchains "at least 19 times" since its inception in 2009. However, not all hard forks are successful or widely adopted by the community.
Some hard forks are created for experimental purposes, while others are driven by ideological or financial motives. Some hard forks aim to fix perceived flaws or limitations of Bitcoin, while others seek to add new features or functionalities.
The following is a summary of the top 5 hard forks of Bitcoin by market capitalization as of January 2024
Bitcoin Cash (BCH)
Forked at block 478558, 1 August 2017, for each bitcoin (BTC), an owner got 1 Bitcoin Cash (BCH). Bitcoin Cash was created to increase the block size limit from 1 MB to 8 MB, allowing more transactions to be processed per block and reducing fees and congestion on the network. Bitcoin Cash later split into two further hard forks: Bitcoin ABC and Bitcoin SV.
Bitcoin SV (BSV)
Forked at block 556766, 15 November 2018, for each Bitcoin Cash (BCH), an owner got 1 Bitcoin SV (BSV). Bitcoin SV stands for Satoshi Vision, and claims to restore the original protocol and vision of Bitcoin's anonymous creator, Satoshi Nakamoto. Bitcoin SV increased the block size limit to 128 MB, and later to 2 GB, enabling massive scalability and high transaction throughput. 
Bitcoin Gold (BTG)
Forked at block 491407, 24 October 2017, for each bitcoin (BTC), an owner got 1 Bitcoin Gold (BTG). Bitcoin Gold was created to democratize the mining process and reduce the dominance of large mining pools and specialized hardware. Bitcoin Gold changed the proof-of-work algorithm from SHA-256 to Equihash, making it possible to mine with consumer-grade graphics cards (GPUs). 
Bitcoin Diamond (BCD)
Forked at block 495866, 24 November 2017, for each bitcoin (BTC), an owner got 10 Bitcoin Diamond (BCD). Bitcoin Diamond was created to improve the speed, privacy and cost of Bitcoin transactions. Bitcoin Diamond increased the block size limit to 8 MB, implemented a new encryption method called X13, and added a privacy feature called Optimized Schnorr Signature. 
Bitcoin Private (BTCP)
Forked at block 511346, 28 February 2018, for each bitcoin (BTC) or ZClassic (ZCL), an owner got 1 Bitcoin Private (BTCP). Bitcoin Private was created to enhance the privacy and anonymity of Bitcoin transactions. Bitcoin Private combined the features of Bitcoin and ZClassic, which is a fork of Zcash that removed the founders' reward. Bitcoin Private implemented zk-SNARKs, a zero-knowledge proof technology that allows transactions to be verified without revealing any sensitive information.
What about my BTC bags??!!
When there is a hard fork, what happens to your BTC tokens depends on whether you control your private keys or not. Private keys are the secret codes that allow you to access and spend your bitcoins.
If you store your bitcoins in a wallet where you control your private keys, such as a hardware wallet or a paper wallet, then you will be able to claim your new coins after the hard fork by importing your private keys into a compatible wallet.
However, if you store your bitcoins in an exchange or a custodial service that holds your private keys for you, then you will have to rely on them to support the hard fork and distribute your new coins accordingly.
Some exchanges may not support certain hard forks or may delay their support due to technical or regulatory reasons.
For example, when Bitcoin Cash hard forked from Bitcoin in August 2017, most major exchanges supported the fork and credited their users with BCH tokens at a 1:1 ratio. However, some exchanges like Coinbase initially did not support BCH and only added it later after facing customer backlash and legal threats.
When Bitcoin Gold hard forked from Bitcoin in October 2017, some exchanges like Bittrex supported the fork but charged a fee of 0.01 BTG to withdraw the new coins, while others like Bitfinex did not support the fork at all.
When Bitcoin SV hard forked from Bitcoin Cash in November 2018, some exchanges like Binance supported both forks and allowed users to trade both BCH and BSV, while others like Kraken only supported one fork and delisted the other.
Hard forks are rarely anything but smooth and often cause significant market disruption, sometimes with effects felt long after the fork itself.
There is an alternative to hard forks to resolve significant community disagreements: Leave for another chain.
A more graceful parting of ways?
One huge advantage is that Bitcoin-ers (miners & holders) don't expect much.
Bitcoin has basically nothing built on it as compared to even the newest blockchains.
You wouldn't need a thriving ecosystem of dapps to entice them off the OG L1 as the Bitcoin community has (to date) appeared to care little for alternative crypto use cases or technological advances.
If you were able to provide a secure and easy way to shift money out of BTC into a similar POW (proof of work) this could be a very effective vampire attack on Bitcoin (vampire attacks explained https://beincrypto.com/learn/vampire-attacks-crypto-explained/)
That's if there wasn't, at the same time, a desire to fund want-away users and miners by the traditional finance players.
In that case it could be that traditional finance actually helped boost the liquidity of a POW competitor chain in order to achieve greater control over their Bitcoin itself and rid themselves of troublesome participants.
Where could miners go after Bitcoin?
It only really matters what miners want as holders have no direct influence in POW due to there not being a requirement to stake tokens in the network in order to build new blocks i.e., process transactions.
Whilst holders control capital, that capital is at the whim of miners as it's miners who facilitate transactions. So it's very likely that whilst holders would be extremely vocal they would have as much say as they do now in Bitcoin, which is near zero.
It's why Jack Dorsey invested in mining infrastructure over just buying BTC. He has an outsized influence via miners vs simply buying and holding BTC (which gives you little to none)
- Jack Dorsey wants to decentralize Bitcoin mining with new investment (cointelegraph.com)
- Jack Dorsey Backed Bitcoin Mining Pool Ocean Acknowledges Filtering Ordinal Inscriptions – Bitcoin News
This is also why Michael Saylor is such an idiot and should never be listened to. Ever.
He literally spent billions on buying tokens that give him zero influence over the core direction of the Bitcoin blockchain (and therefore his own wealth) when mere millions would've bought him a physical seat at the table.
But then again you only need listen to him for 5 mins to realise he's not playing with a full deck of cards...
https://x.com/romoolo/status/1750643457092116679?s=20
Bitcoin right now
Let's start with a re-cap of where the OG blockchain is right now.
Bitcoin uses a hashing algorithm called SHA-256 to secure its transactions and blocks .
The block time of Bitcoin is about 10 minutes, which means that a new block is added to the blockchain every 10 minutes on average .
The current daily transaction volume of Bitcoin is about 1.2 million transactions, while the highest ever transaction volume, to date, was about 1.8 million transactions on December 14, 2017 .
The block rewards of Bitcoin are the incentives for miners to validate and confirm transactions. The block reward consists of two parts: the newly created bitcoins and the transaction fees. The current block reward is 6.25 bitcoins, which is worth about $250,000 USD at the current exchange rate . The block reward decreases by 50% every 210,000 blocks, or about every four years, in a process called halving . The next halving is expected to occur in 2024, when the block reward will drop to 3.125 bitcoins.
The hash rate of the Bitcoin network is the amount of computing power dedicated to validating and protecting the blockchain. The higher the hash rate, the more secure and resilient the network is against attacks. The current hash rate of the Bitcoin network is about 500 EH/s, which means it can perform 500 quintillion hashes per second.
To produce a block on the Bitcoin blockchain, a miner needs to find a cryptographic hash that meets the network difficulty, which is adjusted every 2016 blocks to keep the average block time at 10 minutes. The network difficulty as of January 2024 is 73.20 T.
There is no fixed amount of hash power required to mine a block, as it is a probabilistic process that depends on the luck and competition of the miners. However, one can estimate that to mine a block roughly once per hour, one would need about a sixth of the total hash power, which is around 83 EH/s.
Ranking alternative POW blockchains
Assessing alternative POW blockchains is a highly speculative endeavour. None of the current POW chains have the transaction volume currently to support a large miner exodus from Bitcoin without there being a general move of focus within the crypto space from Bitcoin to other POW chains.
For purpose of this exercise we're going to assume there is a significant desire for people to seek a new POW chain other than Bitcoin.
The Contenders
According to CoinMarketCap , the top 10 proof of work (PoW) blockchains by market capitalisation as of January 2024, not including Bitcoin (BTC) or Ethereum (ETH), are:
- Dogecoin (DOGE) - $11.13B
- Litecoin (LTC) - $4.86B
- Bitcoin Cash (BCH) - $4.65B
- Ethereum Classic (ETC) - $3.38B
- Monero (XMR) - $2.9B
- Kaspa (KAS) - $2.23B
- Bitcoin SV (BSV) - $1.33B
- Conflux (CFX) - $680.86M
- Siacoin (SC) - $497.47M
- Zcash (ZEC) - $489.6M
How easily could a Bitcoin miner switch over?
To rank these POW blockchains in terms of how easily a Bitcoin miner could switch over their mining operations to that blockchain, we need to consider the mining algorithm, the hardware requirements, the profitability and the network difficulty of each blockchain.
One way to rank them is as follows:
1. Bitcoin Cash (BCH): Uses the same SHA-256 algorithm as Bitcoin, so miners can use the same hardware and switch easily between the two blockchains. However, BCH is less profitable and has lower network difficulty than Bitcoin.
2. Bitcoin SV (BSV): Also uses the SHA-256 algorithm and has similar hardware requirements as Bitcoin, but is even less profitable and has lower network difficulty than BCH.
3. Litecoin (LTC): Uses the Scrypt algorithm, which requires different hardware than Bitcoin, but is still compatible with some ASIC miners that can mine both algorithms. Litecoin is more profitable and has higher network difficulty than BCH and BSV.
4. Dogecoin (DOGE): Also uses the Scrypt algorithm and has similar hardware requirements as Litecoin, but is less profitable and has lower network difficulty than Litecoin.
5. Zcash (ZEC): Uses the Equihash algorithm, which requires different hardware than Bitcoin and Scrypt, but is still compatible with some ASIC miners that can mine both algorithms. Zcash is more profitable and has higher network difficulty than DOGE.
6. Ethereum Classic (ETC): Uses the Ethash algorithm, which requires different hardware than Bitcoin, Scrypt and Equihash, but is still compatible with some ASIC miners that can mine both algorithms. Ethereum Classic is more profitable and has higher network difficulty than ZEC.
7. Monero (XMR): Uses the RandomX algorithm, which requires different hardware than Bitcoin, Scrypt, Equihash and Ethash, but is still compatible with some CPU and GPU miners that can mine both algorithms. Monero is more profitable and has higher network difficulty than ETC.
8. Siacoin (SC): Uses the Blake2b algorithm, which requires different hardware than Bitcoin, Scrypt, Equihash, Ethash and RandomX, but is still compatible with some ASIC miners that can mine both algorithms. Siacoin is less profitable and has lower network difficulty than XMR.
9. Conflux (CFX): Uses the Octopus algorithm, which requires different hardware than Bitcoin, Scrypt, Equihash, Ethash, RandomX and Blake2b, but is still compatible with some GPU miners that can mine both algorithms. Conflux is more profitable and has higher network difficulty than SC.
10. Kaspa (KAS): Uses the Dagger algorithm, which requires different hardware than Bitcoin, Scrypt, Equihash, Ethash, RandomX, Blake2b and Octopus, but is still compatible with some GPU miners that can mine both algorithms. Kaspa is more profitable and has higher network difficulty than CFX.
Miner profitability
Using WhatToMine , the profit per block for mining each of these cryptocurrencies in USD, for January 2024, are (ranked in order of MC):
1. Dogecoin (DOGE) - $0.20 per block, one block every minute
2. Litecoin (LTC) - $1,000 per block, one block every 2.5 minutes
3. Bitcoin Cash (BCH) - $1,500 per block, one block every 10 minutes
4. Ethereum Classic (ETC) - $100 per block, one block every 13 seconds
5. Monero (XMR) - $750 per block, one block every 2 minutes
6. Kaspa (KAS) - $0.01 per block, one block every second
7. Bitcoin SV (BSV) - $500 per block, one block every 10 minutes
8. Conflux (CFX) - $0.50 per block, one block every 30 seconds
9. Siacoin (SC) - $0.05 per block, one block every 10 minutes
10. Zcash (ZEC) - $750 per block, one block every 75 seconds
Ranking the top ten POW blockchains from above in terms of how profitable it is to mine each block, we get:
1. Litecoin (LTC)
2. Bitcoin Cash (BCH)
3. Monero (XMR)
4. Zcash (ZEC)
5. Ethereum Classic (ETC)
6. Dogecoin (DOGE)
7. Bitcoin SV (BSV)
8. Conflux (CFX)
9. Siacoin (SC)
10. Kaspa (KAS)
Using WhatToMine , the profit per block for Bitcoin mining in USD, for January 2024, is: Bitcoin (BTC) - $3,000 per block, one block every 10 minutes
The elephant in the... market
The biggest caveat here is the price of the coins themselves.
Bitcoin mining would not be as profitable as it is if it wasn't for BTC's very high price.
Fees are paid in BTC after all and so too are fees paid in the native token on each of the other POW chains.
Should the price of Bitcoin fall significantly it will reduce dramatically the number of profitable miners and should a traditional finance controlled miners be able to offset mining costs with ETF revenues it will speed up any hard fork or transition away from the Bitcoin chain.
I've made it clear throughout this post how little direct power holders have in a POW blockchain and that's true, to a point.
Holders have the largest impact on the price of the token and that token price directly influences profitability (until one of these chains actually sees enough transactions to pay for itself WITHOUT needing to continually mint new tokens and then token price means less).
There is a future scenario where an already reasonably profitable POW blockchain sees a large increase in price which makes it much more profitable to mine than Bitcoin.
We COULD see a snowball effect take place. e.g.,
- OG Bitcoin holders, frustrated with the traditional finance take over of Bitcoin and the loss of the ideals that brought them to Bitcoin in the first place, cash out their Bitcoin to move over to an alternative POW chain (new or existing).
- Even selling their Bitcoin at a discount we still see the alternative chain's token increase significantly in price.
- Miners are attracted to the alternative chain due to the massively increased mining profitability
- Volumes are driven up by FOMO. People will naturally (and incorrectly) assume the alternative chain's token is headed towards Bitcoin prices which further increases the demand for the alternative chain's token and causes Bitcoin prices to fall which only increases the number of people looking to 'jump ship'. It could get really crazy for bit.
Everything is sped up in crypto. Any transition like this could happen in under a year.
It doesn't take that long to repurpose hardware to do very similar stuff and swapping tokens, even on older blockchains, takes under a day.
Predictions are hard.
As Mark Twain said, it is difficult to make predictions, particularly about the future.
There's little fun in taking the safe route though; here's some fearless predictions about what happens next.
Business as usual
The most likely scenario is nothing happens. Inertia is a very powerful force after all.
Most Bitcoin holders are akin to lotto ticket buyers. They're holding on for the big payday and aren't much concerned with censorship, technology or even payments (which is literally what Bitcoin is supposed to be for).
And as for OGs, even if they're disillusioned with a new direction for Bitcoin, they have a lot invested (both mentally and financially) in the current Bitcoin chain so it's hard for them to move. So they don't and just tough it out. With their millions of BTC (must be nice).
Another hard fork. Another less successful 'Bitcoin'
The next most likely scenario is we just see another hard fork. There's been so many in Bitcoin's history so far another one wouldn't be as controversial as it would likely be reported as at the time. This one would likely see the new Bitcoin chain sustain a lot popularity than the other ones but still, due to the reasons above, it will be much smaller entity in a relatively short space of time.
A challenger dethrones Bitcoin
The least likely scenario is we see a genuine Bitcoin challenger replace Bitcoin as the default 'digital gold' in crypto. This scenario, whilst the least likely, is by far the most disruptive. More than a hard fork (which is still essentially the same Bitcoin, just now as two chains) this would represent significant retooling across the ecosystem in terms of holders and mining operations.
Once committed to to chain switch inertia effects will start to work for the challenger chain the same as they do now for Bitcoin.
If you're an exchange and you've just spent 500K in development costs to set up new infrastructure on your side to handle increased usage you're incentivised to try and see a pay back for that investment.
Ditto and doubly so for miners who've repurposed their operations.
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