Rewards received by bitcoin miners form a major chunk of the salaries paid across major proof of work (PoW) blockchains, according to Yassine Elmandjra, a cryptocurrency analyst from ARK Invest.
For example, bitcoin miners were paid over $15 million worth of the cryptocurrency as incentive to mine blocks and secure the network on Jan. 9. Meanwhile, the total rewards paid across bitcoin (BTC), ethereum (ETH) and other major PoW cryptocurrencies including zcash (ZEC), litecoin (LTC), ethereum classic (ETC), bitcoin cash (BCH) and bitcoin SV (BSV) were just a bit more than $18 million.
Essentially, bitcoin miners were responsible for nearly 83 percent of the total mining rewards paid across major PoW blockchains.
Since mid-2017, bitcoin miners' salary share has increased by 250 percent, while that of ether, the second-largest cryptocurrency, has dropped significantly.
Proof-of-work is a consensus algorithm for blockchain networks where miners find blocks by solving cryptographically hard puzzles. This is in contrast to the proof-of-stake (PoS), where validators lock up the respective cryptocurrency to claim their stake in the ecosystem.
The fact that bitcoin miners are drawing significantly higher salaries than their counterparts is not surprising, given bitcoin is the strongest PoW-powered coin with the largest network effect and the longest track record, according to Muneeb Ali, CEO of Blockstack PBC.
A network effect is the idea that as adoption and integration into a system grows, so does its value – and at an exponential rate rather than at a linear rate.
Back in 2016, bitcoin expert Trace Mayer mentioned the store of value appeal, security and speculation that bitcoin’s network effect would grow rapidly.
“The cryptocurrency has almost totally captured the store of value narrative, allowing for consolidation around the strongest coin,” Blockstack’s Ali said.
Further, bitcoin's network security, as represented by its hash rate, has increased sharply over the years, helping build confidence in the blockchain and establishing a positive feedback loop of security and network effect. At press time, bitcoin's hash rate is roughly 100,000,000 Terahashes (or 100 exahashes).
Bitcoin’s share of PoW mining could grow even larger in the future as ethereum and other blockchains begin shifting to proof-of-stake, which is less energy-intensive consensus mechanism, said Ali.
Ethereum is expected to complete the transition from PoW to PoS by 2022. “Its network will be better once ETH 2.0 (post-transition) shows its true value in the global market,” Steve Tsou, Global CEO of RRMine, told CoinDesk.
Another factor that could affect miner’s income and influence bitcoin’s share of PoW mining is the reward halving due in four months. The rewards received for per block mined on bitcoin’s blockchain will be reduced from 12.5 BTC to 6.25 BTC sometime in May. Mining costs will double post halving and that could crowd out weak miners, causing changes between supply and demand.
RRMine’s Tsou said miners' income will rise if halving creates a supply deficit, pushing prices above mining costs. That could also boost bitcoin’s share of PoW mining – more so, as increased profitability may attract miners from other chains.
“The most important thing is that the miners control the cost, which completely determines if the miners can profit from it,” Tsou said.
However, if prices drop sharply, controlling cost will be a challenge and miners may exit, possibly leading to a drop in bitcoin’s share of PoW mining.
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