Author: BTCLFGTEAM
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What is the Bitcoin hash rate? And why is at all-time highs?
Key Takeaways
- The Bitcoin hash rate is the amount of computing power contributed towards mining
- It has continued to take new all-time highs
- This squeezes miners’ profitability, at a time when electricity costs have risen and the Bitcoin price has fallen
- Overall, a high hash rate implies a healthy and more secure Bitcoin network
“All-time high” is a phrase I haven’t used in a while when covering the cryptocurrency space. But if you look, there is something that continues to hit higher highs, and that is the Bitcoin hash rate.
Bitcoin’s hash rate refers to the amount of computing power that is being contributed to the network through mining. And as the chart below shows, its inexorable rise during the pandemic does not seem to be slowing down. But what does this mean, and why is it rising?
What is the Bitcoin hash rate?
Gone are the days when anyone could mine on their personal computer. Today, mining is dominated by large mining pools, using specialised computers specifically designed for this purpose.
The practice of mining actually involves these computers solving complex mathematical puzzles. Once this puzzle is solved, the latest block of transactions can be validated and attached to the blockchain, before the process repeats regarding the next block and the next mathematical puzzle. Once a puzzle is solved and a block validated, the miner responsible for this work gets paid in newly created bitcoins.
This is all very complicated, but what is important to understand is that Bitcoin is programmed to release a specific number of Bitcoin over time, with the blockchain coded such that a new block is added (validated) every ten minutes.
But as more computers join the network and the hash rate increases, these puzzles should get solved quicker, meaning quicker block time and more bitcoins released. Right? Well, here is the thing. A difficulty adjustment is coded into Bitcoin – that means that the more computing power that joins the network, the harder it is to solve those puzzles.
Don’t ask me how this works, because I don’t even come close to understanding what is under the hood of the mythical beast that is the Bitcoin blockchain, but the main point is that as more miners join, the difficulty goes up.
And as Bitcoin has become more popular (and risen in price), that is exactly what has happened. More miners have joined the network, and today it is a highly advanced process. Ten years ago, when only few miners existed, you and I could have pulled out our laptops and mined to a reasonable degree.
Why is at all-time highs?
There are a number of reasons why hash rate continues to surge to new highs. But the bottom line is that the increase in miners causes the hash rate to climb.
Thus the question really asks why miners are continuing to join, when the price of Bitcoin has been plummeting. There are a couple of potential answers here.
The first is that during the pandemic bull run, mining equipment was scarce and prices for items such as chips were sky-high. Many miners ordered new mining rigs during the bull run, but only received the equipment recently (or some, not even yet).
Additionally, as the price of Bitcoin fell, the profitability of mining also decreased, given miners’ revenue is denominated in Bitcoin. New mining equipment has been developed and is selling for a lower price than previously, helping to push the number of miners higher.
One other theory is the Ethereum Merge. This took place in September, when Ethereum transitioned from Proof-of-Work to Proof-of-Stake, meaning mining on the network ceased. Hence, some of these out-of-work Ethereum miners transitioned across to Bitcoin mining.
What does a higher hash rate mean?
The first consequence of an increasing hash rate is obviously greater pressure on miners. More competition and a higher required hash rate squeeze their profitability, especially at a time when electricity costs have risen and revenue (Bitcoin) has fallen.
The best way to see this is to glance at the share price action throughout 2022 of some of the public mining companies.
On the positive side, the Bitcoin hash rate is considered a security metric for the network. The higher the hash rate, the more secure the network, so in that context, the all-time high represents a good thing.
This is why a high hash rate is generally looked upon favourably, as it implies a healthy network. Only problem is, miners are feeling the squeeze.
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El Salvador’s volcano-powered Bitcoin City wins design award
- El Salvador is the first country that recognised Bitcoin as legal tender.
- Bitcoin City has been recognised as a sustainable and highly efficient project.
- El Salvador is building the new city in the country’s East, with clean energy entirely sourced from nearby volcanoes.
El Salvador made history when it became the first country in the world to adopt Bitcoin (BTC) as legal tender. The country also announced an ambitious project dubbed ‘Bitcoin City’ – a move that continues to inspire many other nations and jurisdictions across the world.
Importantly though, and in one of the many positive news around the El Salvador Bitcoin bet, the eco-friendly project Bitcoin City has just received international recognition.
According to a news report by Noticias de Bariloche, Bitcoin City won an award after getting a thumbs up approval from a panel of experts over its architectural design.
The award was given by LOOP, a Costa Rica-based sustainable architecture and design studio. Per the the LOOP Designs Awards 2022 website, Bitcoin City was picked as category winner from a pool of 705 submissions from 56 countries.
Volcano-powered Bitcoin city
EL Salvador’s Bitcoin City is a new city project under development in the country’s East, and is designed by Fernando Romero Enterprise EE, a Mexico-based design studio. The project features revolutionary urban planning with Bitcoin and nearby volcanoes powering financial investments and everyday activities.
The two volcanoes (Tecapa and Conchagua) will provide clean energy.
“A number of incentives for investors will make this city a reference on how to make a city both efficient and sustainable at the same time,” LOOP wrote in a brief description of the project.
As CoinJournal previously reported, building Bitcoin City is expected to take at least ten years.
El Salvador proves critics wrong on Bitcoin bet
On Tuesday, El Salvador president Nayib Bukele slammed international media for their negative reporting on the country since it adopted BTC as legal tender. His comments came as the country repaid in full its $800 million in maturing bonds – despite Bitcoin price plummeting in 2022.
Mainstream media reports had pointed out that El Salvador risked defaulting on the payments if it failed to strike a deal with the International Monetary Fund (IMF). President Bukele slammed the forecasts by “experts” and rating firms for their “lies”.
Yesterday, El Salvador demonstrated that the big media, the “experts”, the financial analysts and the credit rating agencies, shamelessly lie to the people, their audiences and their clients.
The next time they say anything, remember that. https://t.co/Lb2uDPlYxr
— Nayib Bukele (@nayibbukele) January 24, 2023
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What are the most popular altcoins today?
- Cryptpcurrencies, Bitcoin and are altcoins – what’s the difference?
- What are the different types of altoins?
- Ethereum (ETH) and Tether (USDT) – the two most popular altcoins.
Do you know there are thousands of alternative coins, or altcoins? In the ten years since Bitcoin’s genesis block was created, thousands of alternative cryptocurrencies, or altcoins, have emerged as a result of blockchain innovation.
Altcoins are any coins or tokens that isn’t Bitcoin. Altcoins and their respective platforms can be created by anyone with an internet connection because blockchain is open-source. The variety of altcoins is growing.
Needless to say, altcoins have come a long way since Namecoin, the main altcoin, introduced the idea of colored coins that resembled non-fungible tokens, also known as NFTs.
Popular altcoins: What exactly are they?
Traditionally, altcoins are created to fill a need that arises from perceived market gaps that Bitcoin does not fill. Each digital asset is created with a specific goal in mind, some of which are similar to one another.
Tokens of use: Within a network, these offer services like purchasing services, paying network fees, and redeeming rewards.
Tokens of payment: These are exchanged for value in the form of currency.
Tokens for security: The Securities and Exchange Commission is in charge of these tokenized assets, which are traded on stock exchanges and held by an organization.
Stablecoins: In order to provide relative price stability, the value of a stablecoin is tied to an external reserve asset, such as precious metals or fiat currencies.
Memecoins: Memecoins are often created to take advantage of short-term gains and are based on viral internet trends.Heard of Dogecoin?
Tokens for governance: Users can vote with these utility tokens on a decentralized blockchain.
Altcoins can be created from scratch or, more frequently, forked from a code that already exists. When a blockchain separates from its parent chain to form a new network that adheres to a different software protocol, a fork takes place. The parent network is typically Bitcoin or Ethereum. Forks typically occur when developers disagree about the direction of a platform. They might change the source code to start a new chain.
Why an altcoin?
There are numerous factors that draw crypto investors to altcoins. They are what Bitcoin calls the “better mousetrap,” which means that they operate on improved versions of their previous blockchain networks.
Altcoins are the result of inventive solutions to previously unsolved software flaws, inefficiencies, and vulnerabilities. Due to their adaptability, altcoins have a better chance of long-term survival and more utility. They are better prepared for market developments in the future thanks to their adaptability in the crypto economy, which is unmatched by Bitcoin.
Lastly, because tokenomics is still in its infancy and there is room for expansion, altcoins are much more accessible. Altcoins, on the other hand, is regarded as a more risky investment. Altcoins have limited liquidity, a high level of market saturation, a smaller market cap, and a lack of credibility. They are also susceptible to scams, despite their relative price resilience.
We are highlighting the 20 market-favored altcoins that have come out on top halfway through 2022, which is another year marked by high volatility and a loss of $2 trillion. Major players ought to take advantage of the view while it lasts because, in crypto, tomorrow is not promised.
How to know DAO?
Decentralized autonomous organization, also known as an entity structure in which token holders, as opposed to a centralized authority, participate in the management and decision-making DApps for decentralized finance: software that can run entirely on a blockchain, also known as decentralized applications
NFTs: non-fungible tokens, also known as digital assets.
ERC-20: a token standard that is part of Ethereum and lets dApps use smart contracts to make their own coins or tokenized assets.
PoW lines: A consensus mechanism known as proof of work (PoS) only verifies a transaction after a certain amount of computational effort has been put into it.
Popular altcoins
The Ethereum cryptocurrency logo is a proof-of-stake consensus mechanism that avoids the computational power required in a PoW model by designating a class of its users to validate transactions.
Ethereum (ETH)
Ethereum (ETH) is the preferred blockchain for developers. Ethereum is a global decentralized software platform that uses blockchain technology and introduced smart contract functionality to DeFi.
In essence, Ethereum makes it possible for computer programs to automate transactions between two parties, eliminating the requirement for a middleman and reducing transaction costs while simultaneously increasing reliability.
It serves as a layer 1 or base network that can be built upon by anyone in the public. It currently supports 2,970 dApps and has more than 48,000 daily users. Many people consider Ethereum to be a pillar of the cryptocurrency space rather than an altcoin because of its centrality to the infrastructure of DeFi as we know it.
Tether (USDT)
Stablecoin vanguard, Tether is a first-generation centralized coin that guarantees a one-to-one fiat currency match and is fixed to the value of the US dollar.
The stablecoin, formerly known as Realcoin, was created in 2014 by developers Brock Pierce, Reeve Collins, and Craig Sellars to give investors a way to enter the cryptocurrency market without having to deal with its notoriously high volatility. Tether supports a variety of international currencies in addition to Ethereum and Bitcoin, as well as other well-known blockchains like the British pound and the Mexican peso.
The USDT, its native coin, consistently surpasses Bitcoin’s trading volume record for any cryptocurrency.
In an $18.5 million settlement in February 2021, a New York attorney general found Tether to have “recklessly and unlawfully covered up massive financial losses to keep their scheme going,” despite the company’s assertion that all transactions are fully backed by its reserves. Since then, Tether has changed its focus to U.S. Treasury holdings rather than commercial paper holdings and increased transparency across its website. Treasury Bills, while 28% are made up of commercial paper.
According to an official statement released in June, Tether intends to eventually reduce that number to zero. When the algorithmic stablecoin Terra crashed for $40 billion, it sparked a Tether run, prompting a large number of investors to withdraw their coins out of fear of insolvency. This provided an opportunity to disprove rumors and allegations.
By redeeming $16.3 billion, the company reduced the USDT supply by 20%.
Conclusion
We hope now you are familiar with alcoins. Either centralized or decentralized, all cryptocurrency-selling platforms fall into one of the above-mentioned altcoins. Similar to an issuing bank, a centralized authority is responsible for approving transactions and maintaining the blockchain ledger in centralized cryptocurrency exchanges (CEX), like Tether and Bitcoin.
A trustless, encrypted ledger that is validated by consensus and distributed to everyone in the chain is used in decentralized exchanges or trading platforms like thequantum-ai.com. Ownership is yet another important consideration. In contrast to centralized systems, token holders in a decentralized system retain full ownership of their digital assets.
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Nearly 13 million bitcoins have not moved in over a year, an all-time high
Key Takeaways
- An all-time high of 12.7 million bitcoins have not moved in over a year
- That translates to two-thirds of the circulating supply
- Only 7% of bitcoins have moved in the last month
- History shows that long-term holders tend to rise as price falls, which may seem counter-intuitive
- The real story is a little more nuanced, as falling trade volumes in bear markets provide a lurking variable which affects the data
One of the intriguing things about blockchain is the public availability of all sorts of stats about the network.
A lot is made of the fixed supply cap of Bitcoin, with the final supply of 21 million bitcoins slated to be hit by 2140. Bulls use this as a case in point as to why the asset is programmed to expand in price, as its scarcity will inevitably squeeze the asset upwards.
By looking on-chain here at https://coinjournal.net/, we noticed a quirk in this data.
Long-term holders continue to grow
Despite the bloodbath that was cryptocurrency in the year 2022, long-term holders have continued to accumulate. Out of the 19.27 million bitcoins currently in circulation, 12.77 million bitcoins have not moved in over a year – an all-time high.
It’s a pretty significant number. In the following chart, I have plotted these bitcoins against two other categories: firstly, bitcoins that have moved in the last month (traders), and secondly, bitcoins that have not moved in over a month but have moved within the last year (medium-term holders).
Currently, we have 66% of bitcoins unmoved in over a year – again, an all-time high. The previous high was in September 2020 when the mark hit 63%. Prior to that, the previous high was April 2016 at 60%.
A further 27% of bitcoins have not moved in the last month, while the remaining 7% can be seen as traded bitcoins, moving around the blockchain in the last month.
Why are long term holders growing?
The obvious question is, why? Why are we seeing long-term holders growing so substantially when the market has been getting pummelled?
Well, I decided to chart the percentage of long term holders against the bitcoin price. And the result is quite interesting – there definitely seems to be at least a moderate inverse relationship between price and long-term holders. That is, when price falls, long-term holders rise. Hmm.
But in truth, this makes sense. As the price falls, volumes and interest in the market tend to dry up. With that, comes less trading, and by definition less holders under the one-month threshold.
While the narrative of long-term holders soaking up increasing amounts of the Bitcoin supply is often painted in a bullish light, I’m not sure that tells the whole story when considering this historical pattern.
Sure, it is a positive thing that the number of bitcoins that have not moved in more than one year are climbing, as it does show that these long-term holders have tended not to capitulate during the drawdowns.
But a healthy trading market and high liquidity is associated with a bull market, which is part of the reason we are seeing an inverse relationship here. Look no further than trading volume in 2022, which fell 46% on centralised exchanges compared to the previous year – that’s trillions of dollars of activity no longer present.
“Trading volumes have cratered across the crypto space. This has pulled down activity and it’s not surprising that the portion of bitcoins traded recently is therefore falling. The analysis of long-term holders is a more nuanced issue than the crude assumption that ‘more bitcoins in long-term wallets is bullish and therefore price will go up’. That is simply not what we have seen historically” said Max Coupland, Director of CoinJournal.
I’ll continue to monitor all on-chain activity, as the market is certainly showing more life in these early stages of 2023, with softer inflation data giving impetus to the market that we may pivot off high interest rates sooner than previously expected. It will be interesting to keep tabs on the dynamics on-chain, therefore.
But next time somebody declares it obviously bullish that there are less bitcoins being flung around the markets, perhaps remember that the situation is a little more complex than that.
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