The economics of Bitcoin mining - Bitcoin SV

SAN DIEGO, Feb. 9, 2022 /PRNewswire/ -- BSV's transaction fee-to-total block reward surpassed that of BTC on July 16 2021 for the first time, and that gap is widening, and was four times BTC's block reward by August 1, 2021 (source: coin.dance).

Why is this important? It is here that the dynamics of competitive mining economics lies. If the trend continues, BSV miners will enjoy exponential growth of revenue from network fees, and this despite the fact that fee per transaction on BSV is many thousands of times lower than that on BTC.

Miner's block reward = block subsidy + network transaction fees

The trend of network transaction fees, along with the inherent designs of BTC and BSV, does not bode well for BTC. Miners will find it hard to ignore 2x in profitability, or even more if the current trend continues.

BTC miners, therefore, face growing pressure because of BSV's exponential growth in network fees. It is simple economics and capitalism that miners will seek the network offering higher profits.

So overall, as long as the current levels of BSV adoption continue, miners will, likely, gravitate towards BSV.

BSV has virtually unlimited block size, and therefore unlimited number of transactions per block whilst also offering transaction fees of less than a cent, with room to go even lower. For more detail, see BTC and BSV, what is the real difference?

Once BSV's fee percentage is around 50%, BTC will struggle to catch up at that level.

Once BSV's average block size reaches the 5GB (a block was recently mined at 3.8 GB), representing 5,000 times that of BTC, there is no reason for this not to go even higher. Indeed, BSV's Teranode architecture aims at block sizes above 1TB.

While it is still possible for both BTC and BSV to be successful in serving different purposes, based on the trend analysis above, the kind of expansion that BSV is having is intrinsically restrictive to BTC due to natural competitive economic forces.

This post has been redacted from ZeMing M. Gao's original article which can be read in full here. 

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