Highlighting Mining Difficulty & Scalability Issues with x11 algorithm on the DASH network
As many people who have jumped onto the cryptocurrency market may have noticed, there are hundreds to choose from. Bitcoin, being the granddaddy of them all, garners and dominates the market currently with its robust and impressive mining infrastructures around the world — just look at Russia:
Using a linear formula to determine the block size required for Bitcoin to make as many transactions as, say, VISA would, we find that with the current 1MB blocks and the 7tx/sec maximum it holds, in order to compete with VISA’s 24,000 tx/second, Bitcoin would need to increase its block size to 4096MB blocks. The presence of 4 Gigabytes blocks in the Bitcoin with a HUGE problem — specifically, processing power. While Bitcoin aims to solve this by increasing its hashrate to global proportions (currently at 10 BILLION GH/s), the problem is timing. Many investors and idealist have been speculating when Bitcoin is ready to turn on that switch and introduce bigger blocks in conjunction with segwit2x, however, it would easily be THE cryptocurrency of the world, thus explaining its high price per bitcoin.
Regardless, looking further into the issues of Bitcoin such as its continuing hard forks, high transaction fees and inability to transact more than 7 transactions(tx)/sec, we venture for those altcoins which may replace and, hopefully, scale much better into the future.
DASH seemed to have promised to solve all these issues for us— with its two-tier masternode governance system, four times less block generation time, its roadmap for mass adoption, and with the recent introduction to 2MB blocks into its system voted into via its masternode voting system, DASH seems to seamlessly be able to transition into real world application without all the drama that surrounded Bitcoin.
The problems DASH tackles, however, only solves issues which does not exist YET, and because of that, has been lagging far behind its competitors in terms of market cap, global presence and adoption. In order for it to fulfill in its promise, it would need to expand — exponentially — its current infrastructure around the world.
These past two weeks, DASH has only recently broken 1 million GH/s in total hashrate. The introduction from Bitmain of the Antminer D3 seemed to have promised to solve this issue for good — in merely 3 months, hashrates have boomed, and with it, higher transactions volumes on the network, which currently sits at $28M 24H volume cap, in comparison to an average of $8M a month before.
As pointed out previously, Bitcoin may require 4096MB blocks to compete with VISA, but DASH proves to only need 1028MB blocks to achieve the same feat. Regardless, its current hash rate of 1 million GH/s is nowhere near the total hashrate Bitcoin commands of 10 Billion GH/s, thus investor confidence in its ability to become the future of transactions has not seen the successes Bitcoin has.
So… what’s the problem?
The problem is with the current scalability issue DASH faces in its infrastructure incentive program. As a recap, all mined DASH is split between 45/45/10 system, where miners only receive 45%, masternode owners (people who own 1000 DASH and provide a second-tier service such as InstaSend and PrivateSend) receive another 45% and 10% is allocated into a budget program which masternode owners can vote into. While this system is by no means the problem, it does put miner incentives, the backbone to their transactional system and their PoW infrastructure which supports everything else, at a clear disadvantage. Not only do miners require much more electricity to use, but a masternode owner, who already has by default a valuation of over $450,000 in prices today passively gains income for updating a single server (talk about the rich get richer).
Recent development in lack of profits have been highlighted with the introduction to Antminer D3’s, where a recent spike in difficulty has made DASH mining officially unprofitable at a cost of 9.2 cents per KWh (current hashrate shown is of ONE antminer D3, worth $1450 on Bitmain):
Many DASH idealist have simply said “just mine and wait until it blows up” but what exactly is anyone supposed to do with a DASH mining generation of 2 DASH a year on a $1450 machine? Meanwhile, their main competitor, Bitcoin’s profitability, is better than ever (hashrate shown is of ONE antminer S9, worth $1415):
While short term profits are the least of anyone’s concern in the cryptospace, it does seem to present a problem when the hashrate is the sole indicator of cryptocurrency dominance in the cryptocurrency space and the short term profits of the only cryptocurrency promising to solve many of the issues Bitcoin now faces can’t even handle a few month’s worth of ASIC miners without shooting profits into the negative.
This got me thinking — and this is the caveat of this whole article:
Is this something inherently embedded into the DASH hashrate difficulty system and x11 algorithm? Or is this something that is only a current problem because of the stark difference in price?
So I got to doing some math — I plotted DASH and bitcoin’s difficulty and hashrate for the past month to attempt to create a linear relationship between it and the amount of hashrate introduced into their systems. I created, then, a system to determine the amount of hashrate required to change difficulty on the system:
These plotted numbers tell us that, glancing over the data, one could determine the cause-effect added hashrate has on the DASH network vs what it has on the Bitcoin network is on magnitudes varying from 5 to 10 per hashrate presented:
On average, the ratio average between DASH and Bitcoin hashrate/difficulty profitability is 0.23. This means that for anyone investing into either network, DASH would always render 4 times less profit than Bitcoin’s network. To make this more tangible in terms of everyday profits for miners, in order for DASH mining to remain competitive, a 15GH/s DASH miner would have to either be worth ~330 dollars, DASH would have to be worth ~$2000 dollars or Bitcoin would have to crash to ~$1700, a price we have not seen since May 2017:
Why does this matter?
Clearly there is an investment incentive into networks which have the network capability (measured in hashrates) to become the dominant cryptocurrency of the world, which is why Bitcoin currently sits on top, despite the fact many powerful groups surrounding the cryptocurrency is milking the current high transactional fees and drama surrounding hard forks created on the network. If DASH hopes to become the solution to that, it must prove it can command a network hashrate and mining community as massive as Bitcoin’s, because at the end of the day, any promise of cheap + faster transactions or any new technology piled up onto its existing technology means nothing if it cannot prove to investors it has the backing of a worldwide community willing to support its increase in MB blocks and the addition of more users onto its network.
In short, Bitcoin is on the cusp of becoming the global cryptocurrency (all it needs is for a consensus of miners to support bigger MB blocks, thus why everyone was excited for the recently introduced Bitcoin segwit2x split) with all the infrastructure it commands, and DASH is barely just sitting on the starting line with the introduction of ASIC miners earlier this year, failing to properly create incentive to the backbone of any cryptocurrency — its miners.
Do not let the technology go to waste, devs; Focus on creating the decentralized infrastructure you need to incentivize your miners worldwide, not just in China (where electricity is 3 cents KWh). It doesn’t need to beat Bitcoin profitability, but it needs to at LEAST be viable to dedicate hashrate and the heavy electricity workload to.