Miners, You’re Losing Money By the Second! (But You Can Fix it)
You’re a Bitcoin Miner. I wrote you a detailed letter last month, but I realize you might not have time to read it or understand all the details.
This is still an urgent problem, so I’ll make this as simple as possible:
Someone Is Stealing Your Hard-Earned Cash
This is 100% true. I’ll explain who I believe is behind this treachery, but the bottom line is that the network is being strangled since it can only handle a pathetically small 1MB block of transactions every 10 minutes.
This is KILLING the growth of Bitcoin, along with your profits, as I’ll explain.
Bitcoin Has Fallen From 95% to 40%
Global demand for cryptocurrencies like Bitcoin is skyrocketing. But within this new asset class, Bitcoin is actually crashing.
Bitcoin used to account for 95% of the market. Shockingly, it has plummeted to 40% in only a few short months.
The Cryptocurrency Boom Is Hiding the Problem. Here’s How Much Money You Really Should Get:
Because Bitcoin price has been going up, it is easy to be unaware of the underlying problems. And although Bitcoin has appreciated 300%, it’s nearest competitor, Ethereum, has appreciated 3000%!
Let’s take a normal price chart and adjust it based on Bitcoin retaining its market share.
The actual price for BTC/USD is the blue line, and the market-share adjusted price is the green line:
How Much Money Have You Lost Already, Because of The Suppressed Bitcoin Price?
As you can see, today’s Bitcoin would be worth $6000 if it retained a 90% share of the cryptocurrency market cap.
That means your revenue would be doubled and your profits would be more than double what they are now.
I don’t blame you if you feel sick just thinking about how much money this adds up to.
Temporarily Higher Fees Don’t Even Come Close to Making Up Those Lost Profits.
Take a look at this chart:
At the peak, fees reached 600+ BTC/day. That’s only 1/3 of the 1800 BTC being mined each day. That’s a 33% increase. This is nothing compared to the 100% increase in revenue that you could have gotten with higher prices.
Therefore, it is a grave mistake to celebrate higher fee revenues instead of looking for the much greater rewards of a high price.
Here’s the really crazy part:
Even the Fee Revenue Would be Higher with Bigger Blocks and More Transactions.
Have another look at the chart above.
Notice the huge overshoot to the upside as a final wave of desperate users pays through their teeth to get their money moved… followed by an ultra sharp decline back to the more reasonable fee levels of 300 BTC/day.
Why such a sharp decline? It’s obvious:
Users Have Stopped Using Bitcoin For Small Transactions
What’s better — 1 transaction with a fee that’s 10 times greater than normal, or 10 transactions with a fee that’s reasonable?
It is much, much better to have 10 times as many transactions. Why? Two reasons:
First, there’s only so much that users are willing to pay for most transactions, and we’ve reached that. I’ll provide evidence for that in a moment.
Secondly, if we increase the capacity, there’s no reason we have to stop at 10 transactions; we could have 100 or 1000 times as many.
Most Users Will Not Pay a Huge Fee
It is only common sense that virtually no one will pay $5 to move $1 of currency. Generally speaking, some people will be willing to pay a bit more for their transactions, and some will pay less. It should follow a ‘normal’ or bell-curve distribution.
Only a tiny percentage of people will pay a very large fee. This theory is confirmed by a poll of 96 users on bitcointalk.org.
In a larger poll, 31% of users (out of 1781 votes) said that even $1 fees are too high and are unsustainable:
Blockchain data confirms this as well. For example, the number of wikileaks donations has dropped from 137 in March to only 68 in May.
As it is now, transaction fees won’t go much higher. Users will simply make less transactions and use other currencies. (Wikileaks now accepts Litecoin).
The Only Way to Raise Fee Revenue From Its Current Level is to Increase the Number of Transactions
If we allow more transactions to be made, only then will revenues increase again. Over time, there will be a steady increase in revenue as shown here:
Your Choice: Economic Annihilation or Bonanza
It’s bad enough that the network congestion is hurting your wallet, but even worse, it will destroy all your future profits and kill your mining business if left unchecked. Bitcoin is quickly becoming an unusable network.
However, the future is SO bright, if we fix this one simple problem. And fixing it is easy.
All we have to do is increase the size of the transaction blocks.
So, Who Is Responsible For This Insanity?
Most likely Bitcoin Core developers under the management of Blockstream, a corporation that has employed (or contracted) with the most senior and influential Bitcoin developers including Gregory Maxwell, Pieter Wuille, Luke-Jr, Jorge Timón, Patrick Strateman, Mark Friedenbach, Matt Corallo, and Rusty Russell.
Blockstream pays these Core developers, who exert control over the Bitcoin reference code running on much of the network.
The Core development team has refused (for years) to increase the number of Bitcoin transactions can process, even though the increase is technically simple.
Be Very Suspicious of the “Segwit Solution”
Peter Wuille, one of the Core developers who works for Blockstream, has created a code package called “SegWit”. If activated, it would actually do very little to immediately uncongest the network since users would have to start creating entirely new kinds of transactions.
Blockstream’s entire business seems to be based on developing “off chain solutions” like the Lightning Network.
Why should you be suspicious?
Well, if users can freely transact on chain, there would be no reason for anyone to use Blockstream’s code, and those solutions would drain money from the ecosystem that normally would go to miners.
Good News: You Can Help Fix This Quickly.
There is an increasing number of smart people who understand the situation going on in Bitcoin right now, and who are working hard to fix it and take the power out of Blockstream’s hands.
But, we cannot do it without the support of the miners.
Here’s What You Need to Do: Switch Pools.
Simply switch to a pool that supports bigger blocks such as AntPool, ViaBTC, or Bitcoin.com.
That’s all you need to do.
If you’re running a single miner, it should take only a few minutes.
DO NOT support any pool that signals “SegWit” as this is only gives more power to Blockstream.
“What If I Don’t Believe You?”
Unfortunately, I know that I won’t convince 100% of readers. Some still believe the Core developers are the authorities on Bitcoin, and that it would be crazy to believe they have anything but the purest of intentions.
All I ask is just try to be open-minded. Assume anything is possible. And if the mining business is important to you, take the time to become informed. You can read the full-length Open Letter to Bitcoin Miners if you want all the pertinent facts.
If you are ready to switch pools, then now is the time to take action.
Do It Right Now While It’s Fresh In Your Mind.
Please, I urge you to take action today…right now, if you can.
It’s really important for everyone, and frankly: If you do not do it, you are flushing money down the drain.
BONUS:
If you really want to help out in a big way, switch pools but also tell your pool operator WHY you’re switching. Some pool operators may not have enough awareness of the situation.
