Chain of Events Post-BSV Halving Mirrors BCH’s, Loyalists Propping Up the Network

Bitcoin SV (BSV) has seen its first halving since its creation in late 2018, hours after Bitcoin Cash (BCH) also completed its 50% block reward reduction event. The cryptocurrency first came about as a result of disagreements between opposing factions within the BCH community, which led to a group backed by self-proclaimed Bitcoin (BTC) creator Craig Wright and billionaire Calvin Ayre forking the chain to form Bitcoin Satoshi’s Vision, or Bitcoin SV.

As was the case with BCH, BSV also saw a reduction in hash rate as miners moved their computing power to the BTC chain, which is currently the most profitable to mine among all three blockchains. BSV proponents say the hash rate reduction is only a temporary trend and will do little to negatively impact miner revenue.

During the hash war between BCH and BSV, the concentration of computing power in those two chains almost led to a mining death spiral for Bitcoin. This period was also the last leg of the 2018 bear market, with the price of BTC bottoming out at $3,800 in December 2018.

With both the BCH and BSV halvings completed, attention now turns to the BTC block subsidy reduction, which is set to take place in mid-May. Given the migration of miners across the blockchains during this halving season, the aftermath of Bitcoin’s 50% inflation drop might provide a clearer picture of the hash rate distribution for the three chains.

On the price side of things, the BSV and BCH halvings have coincided with a downward slide for all three cryptos. Bitcoin has fallen below $7,000 after failing to surpass $7,500 during the fifth time of asking since Black Thursday on March 12, when the price fell sharply to $3,800.

BCH saw a swift retracement after its halving, eroding the 11% gain that followed the event. As of press time, BSV is down more than 15% in the last 24-hour trading period, with the halving failing to trigger any upward momentum in its price action.

BSV in the middle

BSV, while being the youngest of the three “major” Bitcoin chains, saw its halving occur between those of BCH and BTC. As previously reported by Cointelegraph, the block reward subsidy reduction for BCH occurred a full month ahead of that of BTC due to a change in the former’s difficulty adjustment algorithm back in 2017. As a BCH fork, Bitcoin SV inherited this temporary faster block creation time artifact in its blockchain after its split in 2018.

The halving sees the reward earned by miners for each block that they produce fall by 50%. This event occurs after every 210,000 blocks or four years and is an inflation control protocol coded into the Bitcoin blockchain and, by extension, those of BCH and BSV. This quadrennial inflation drop helps to regulate the token supply by slowing down the production of new coins. Without such control measures, miners could theoretically acquire all the block rewards in a significantly short time.

Such a scenario would see the supply of coins outstripping the demand, likely causing the price of the token to crash. The finite supply of 21 million tokens and the inflation control schedule serves to present Bitcoin as “hard money” — currency immune to inflation and indiscriminate dilution — which is a term historically reserved for gold-backed currencies.

Post-halving hash rate plunge: like BCH, like BSV

At 12:48 a.m. Coordinated Universal Time on April 10, the 630,000th block emerged on the Bitcoin SV blockchain. An unidentified mining pool was responsible for producing the milestone transaction. This landmark triggered the halving in miner reward from 12.5 BSV to 6.25 BSV. ViaBTC was the first pool to mine a block under the new regime approximately 30 minutes later.

Before the BSV halving, Jimmy Nguyen, the president of the Bitcoin Association and the former CEO of the blockchain research firm nChain, declared that the halving will serve as a watershed event for Bitcoin SV. Speaking to the Calvin Ayre-owned, BSV-affiliated crypto media platform Coingeek, Nguyen remarked:

“Short-term, 2020’s Bitcoin halving will of course mean an immediate reduction in the profitability of transaction processors. Long-term however, it is my view that the halving of the block reward’s subsidy amount will reinforce the importance of Satoshi Nakamoto’s original economic design for Bitcoin. Satoshi intended to reduce transaction processors’ reliance on the block subsidy amount over time by replacing that income with more transaction fees.”

The aftermath of the Bitcoin SV halving also saw a similar hash rate plunge as was the case with Bitcoin Cash. Following the BCH halving, the computing power expended on the BSV chain rose to about 3.01 exahashes per second.

However, as of press time, data from the blockchain explorer platform Blockchair.com shows BSV’s hash rate at 0.98 EH/s, which means a more than 50% hash rate decline since the time of halving. BSV mining difficulty has also adjusted to the sharp hash rate plunge, reducing by more than 35%. At the time of writing, the BSV blockchain has produced 39 blocks since the halving.

Almost all roads lead to BTC, at least for now

According to data from Coin Dance, the BTC chain now controls 98.7% of the hash rate distribution among all three blockchains. The mass exodus of miners from both BCH and BSV has led to a noticeable drop in the proportion of the total hash rate controlled by the two forks.

In a conversation with Cointelegraph, Connor Murray, a BSV proponent and the host of the Bitcoin and Beyond podcast, argued that the Bitcoin Cash and Bitcoin SV halvings were immaterial. According to Murray, the May BTC halving will determine the future fate of the three chains:

“The BSV and BCH halvings don't matter much since miners can still mine BTC. It is the BTC halving that will have a major effect on the ecosystem, and since there are a very small amount of transactions on the BTC network, the effects will be felt quickly.”

For Murray, the hash rate drop does little to affect the value proposition of BSV. With the halving done, the crypto podcast host remarked that BSV was still on course to attain its developmental goals, adding that “BSV developers and entrepreneurs have been prepared for the halving for years.” Bitcoin SV developer Daniel Connolly also echoed similar sentiments, telling Cointelegraph:

“The halving reduces the subsidy for confirming transactions in blocks. The cost of mining a block has not changed. When a subsidy is decreased, there are two options: increase the cost of confirming a transaction or increase the number of transactions confirmed in a block. BSV is uniquely positioned to increase the number of transactions in a block while maintaining exceptionally low transaction fees and miner revenue.”

For Alex Speirs, the communications director of the Bitcoin Association, the current miner reward model is short lived, with transaction fees being the main incentive for miners once block subsidies run out. In an email to Cointelegraph, Speirs remarked:

“The Bitcoin network was designed to incentivize the sustainability of the network through transaction fees. The problem is, with BTC and BCH, sustaining a model built on transaction fees is just not possible because of the extremely limited block size caps on their networks.”

According to Speirs, the unlimited block size employed in the Bitcoin SV blockchain constitutes a more faithful implementation of Satoshi Nakamoto’s original plan for Bitcoin, adding: 

“We are confident that with the growing volume of transactions seen across the Bitcoin SV network [...] transaction processors (miners) will be incentivized to remain on the Bitcoin SV network by earning an ever-increasing proportion of their revenue from growing transaction fees.”

Network security concerns 

With the BCH post-halving miner exodus, fears have arisen of a possible 51% attack on the blockchain. As reported by Cointelegraph, a rogue attacker would only require about $10,000 worth of rented hash power to stage an attack.

A similar situation has arisen for BSV. As shown by data from Crypto51, a platform that tracks the theoretical host of staging a 51% attack on proof-of-work blockchains like BSV, a rogue actor could attack the BSV chain for one hour for a cost less than the present Bitcoin price.

For Mason Jang, the chief strategy officer at blockchain analytics firm CryptoQuant, BSV mining stakeholders like Coingeek will continue to expend computing power on the Bitcoin SV chain. In a conversation with Cointelegraph, Jang remarked:

“Since the Genesis update, BSV has an unlimited block size and restored op code. Because of this, it's already unfavorable to miners. Instead, the miners and others in the ecosystem are trying to make a distributed database. Therefore, it doesn't seem that the main miners, like Coingeek, will leave the chain.”

Away from the immediate aftermath of the halving, proponents like Murray say Bitcoin SV stakeholders are focused on the planned economic innovations on the chain, telling Cointelegraph:

“There are a lot of entrepreneurs and developers in the 'blockchain' industry that see utility in a global transparent ledger, but are building on top of ledgers that don't scale for global usage. BSV has shown that Bitcoin was always meant to scale to handle billions of transactions a day.”