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Bitcoin Miners' Holdings Calculated with New Methodology

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Tue, 11/03/2020 - 18:04
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Alex Dovbnya
CoinMetrics takes a stab at calculating the holdings of Bitcoin miners with a new methodology
Bitcoin Miners' Holdings Calculated with New Methodology
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Cryptocurrency analytics firm CoinMetrics has come up with a new methodology to quantify the holdings of Bitcoin miners. 

The new technique is based on differentiating the activity of mining pools and actual miners who merge together to discover a much-coveted block.   

0-hop and 1-hope addresses 

CoinMetrics labels all addresses that got payment straight from a coinbase transaction, the first transaction in each block without inputs, as “0-hop.”

A coinbase transaction can only be generated by miners themselves. Individual mining is a bygone era, and large mining pools account for a disproportionately large share of block production.    

The wallets of miners that get payouts from polls are labeled as “1-hop.” By distinguishing 0-hop addresses from 1-hop addresses, CoinMetrics attempts to get a clear picture of miners’ habits. For example, it showed that individual miners were mainly responsible for accumulation in the run-up to the May reward cut.         

The new methodology also has its own shortfalls when it comes to correctly tagging pools and miners: 

“Admittedly, tagging miners and pools based on distance from a coinbase transaction is an imperfect technique. This is especially true when the methodology is applied to the early network, in which solo mining and alternative pool models were more popular.”

Bitcoin miners continue to play an important, albeit less significant role, in the market as the portion of Bitcoin supply under their control continues to gradually decrease.

CM
Image by coinmetrics.substack.com

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Tanking hashrate and soaring fees

As reported by U.Today, Bitcoin’s difficulty recently logged its second-largest negative adjustment to date after the hashrate saw a tremendous drop in October due to the migration of Chinese miners.

CoinMetrics also notes that network fees soared 123.3 percent last week, overtaking the Ethereum blockchain.

Yet, CryptoCompare data shows that large transactions were relatively stable in spite of a declining number of active addresses. 

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Image by @CryptoCompare
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About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets, can be contacted at alex.dovbnya@u.today.