On-chain indicators such as miner holdings and net transfers show that although miners still control a large part of the bitcoin supply, their impact on the bitcoin network is gradually weakening.
Written by: Karim Helmy and the team of cryptocurrency data provider Coin Metrics Compilation: Perry Wang
Coin Metrics authorized Chain Wen to translate and publish the Chinese version of the article.
Point
This report uses a new method for examining address coinbase transaction, hold out to quantify the amount and activity of miners. This method improves on previous studies that tracked miner expenditures, which attempted to inadvertently measure the activities of pool operators rather than the behavior of miners.
In the year before Bitcoin production was halved, as the price of the currency recovered from its trough in recent years, the number of Bitcoin accumulated by miners increased by 318,000 BTC.
As the supply of miners gradually decreases and the net capital flow of their addresses stabilizes, the impact of miners on the Bitcoin network seems to be small.
Upcoming Coin Metrics Network Data Pro 4.8 version will provide miners capital flow and supply indicators.
Miners and the market
In addition to their role in protecting network security, miners also have a profound impact on Bitcoin’s market dynamics. Bitcoin because they can receive new releases rather than buying bitcoins, so naturally the miners net seller of assets. Miners’ operating expenses (mainly electricity and rent) are mainly denominated in legal currency, while their income is embodied in Bitcoin, further enhancing this impact.
The new feature uses account data (previously unavailable) interacting with these addresses to examine the activities of miners and assess their drivers and spending impact.
EU data show that the impact of the miners network is gradually decreased, but they are still a key player in Bitcoin ecosystem, with a lot of money. To help our readers understand these influencing factors, Coin Metrics provides extensive data related to miners in the upcoming Network Data Pro 4.8 version. Using this data, the function held by the miners found Bitcoin supply is usually reduced over time, and out of miners and mining pools of capital flow due to the continuous network of halving suppressed.
Brief description of Bitcoin supply
To calculate the flow of miners’ funds, we first aggregate all transactions from the coinbase (chain note: a coinbase transaction is the first transaction in the block, a unique type of bitcoin transaction that can be created by miners, and miners use it to collect block rewards of their work, any other transaction fees charged by miners also sent this transaction address) in payment is received, and marked as the first transfer (0-hop) address. Then, all the addresses in the group, and a group address from the received address labeled secondary transfer payments (1-hop) address.
Since the mine pool wallet architecture is usually the first to get mine pool block reward before assigning it to the miners, therefore, 0-hop address usually represents mining pools, and 1-hop address is usually on behalf of the miners. It can be seen that the existing system that attempts to infer the behavior of miners from the 0-hop address spending habits is theoretically unsound, and therefore cannot accurately measure the intentions of miners. Instead, they measure mineral pool operator activities.
Of course, it must be admitted that marking miners and pools based solely on the distance in coinbase transactions is an imperfect technology. Applying this methodology to the evaluation of Bitcoin’s early network is very effective. In the early network, personal mining and alternative mining pool models are more popular. Since the first mining pool Slush Pool dug its first block in December 2010, especially the measured values before that date are for reference only. In addition, the addresses of miners who have not received funds from the 0-hop address will not be marked. Nevertheless, this heuristic method represents a significant improvement over the current level of the latest technology, we should be able to accurately capture the broad trend.
Miners, especially those in the early stages of network active miners, control the majority of Bitcoin. In the historical record of the entire Bitcoin network, the total number of Bitcoins owned by 0-hop and 1-hop addresses has generally been on a downward trend. In the second half of 2019 and the first half of 2020 (the year before the production halved), this trend has undergone a major reversal, with miners accumulating 383,000 BTC from the bottom to the peak. This effect is mainly limited to 1-hop addresses, while the 0-hop supply remains roughly unchanged. Therefore, most of this accumulation will not be detected by previous estimation techniques.
As can be seen in the figure, there have been several jumps in the supply held by miners. These spikes are usually caused by the first block mined by an address with a large balance or the first interaction with a previously marked 0-hop address. The most prominent of these spikes occurred in 2012 August 16, was held more than 500,000 whales BTC acquired 194 256 blocks part coinbase reward. Before the halving this year, new entrants were also one of the reasons for the higher supply controlled by miners.
Due to reasons of inflation, from the perspective of the total supply, miners and mining pools have gradually reduced the supply of even greater significance. This decline is consistent with the overall increase in Bitcoin supply dispersion. This is also consistent with the popularization trend of the mining pool model, which means that non-mining addresses are increasingly unlikely to be marked as 1-hop addresses too much.
Despite this trend, even today, miners and mining pools still control a large part of the total Bitcoin supply.
Analysis of mining pools and transfers
The exchange of funds between these groups is another powerful signal on the chain. Because mining pools are usually the direct recipients of coinbase rewards, the 0-hop address capital flow is a useful indicator to measure mining pool activity. Especially the several peak times represented by the activities of the aforementioned giant whales. In addition, since the initial bits of the network credits to the meter BTC 0-hop address into and out tended to decrease.
Miner income or large reward income accounted for the bulk of the inflow of 0-hop addresses. Although the income of miners will change in the short term due to fluctuations in fees and the number of mined blocks, it is relatively stable in various periods.
Although the inflow and outflow are highly correlated, the outflow is more volatile because it is not supported by the agreement and miners can choose when to withdraw funds from the mining pool’s wallet. The reduction in the two capital flows clearly reflects the impact of the halving of production in 2016 and 2020. Since the 2020 halving, the value of inflows has usually exceeded the value of outflows, which is a reversal of historical normality.
Analyze miner funds
Although 0-hop address capital flows are useful for tracking payments from mining pool operators, they do not represent transfers made by miners themselves in today’s standard wallet architecture. In most mineral pool, the block reward is controlled by the mine operator received address pool, the operators will custodian of funds, until a predetermined time interval payment or choose to raise money to replace the miners.
In ore mining pool model, cash flow 0-hop address from coinbase trading closer to spending miners. This report is one of the first studies that attempted to analyze the capital flow of 1-hop addresses. Due to the larger number of research object addresses, lack of underlying support, and fast capital flow, these capital flows are much larger than those corresponding to 0-hop addresses and are more volatile.
In order to analyze the initial capital flow of the Bitcoin network (the mining pool has not yet become the mainstream mining mode), the 0-hop address capital flow may be a more suitable tool. Even today, 1-hop address cash flow is only an approximation of the activities of miners, mine pool because the purse structure varies, and these capital flows may incorrectly contain the Exchange address. But in general, this research model represents a more comprehensive observation of miner expenditures under today’s network conditions.
Like the capital flow of the 0-hop address, the inflow and outflow of the 1-hop address are also closely related. Since the block award represents only 1-hop address a small part inflows, inflows and outflows are therefore very unstable, therefore Bitcoin production halved impact on the flow of such funds is not obvious.
In the past year or so, the inflow and outflow of miner addresses has increased slightly, indicating an increase in activity. Because the net capital flow has remained generally stable and the overall volatility has declined, the increase in activity will not be reflected as an increase in the impact on the network.
The close connection between inflow and outflow shows that miners generally tend to move their bitcoins out of their addresses immediately. In view of the derivatives market and legal tender lenders usually require tokens hosting, so these miners cash flow does not preclude the use of financial instruments to hedge its exposure to the price of Bitcoin. However, the University of Cambridge the third survey data encryption benchmark study of global assets show that the rate of adoption of these financial instruments is very low, miners rely mainly on hold and sell bitcoins to control the level of risk in a desired degree. Such a high transaction volume seems to indicate that miners are active market participants, habitually selling most of the newly received bitcoins.
The impact of dollar pricing
Due to expenses, profits and losses miners are dollar-denominated, so in order to measure the dollar value of cash flow miners useful. Since the 0-hop address cash flow is mainly composed of blocks of reward, so the dollar value of the income curve and the curve is very similar to the miners.
Since it is also linked to the price of Bitcoin, the flow of miners’ funds denominated in USD is similar to the flow of funds from mining pools (the latter is larger). And pool cash flow difference is mine, miners capital flow has been an upward trend, even short end of 2019 exceeded the record high level of Bitcoin period of 2017. This shows that, in dollar terms, the coverage of miner activities in the entire network is wider.
Comprehensive consideration
Individually, the inflow and outflow of address funds is useful for measuring the amount of economic activity that miners participate in.
In the historical record of the Bitcoin network for most of the time, the net flow of funds from 0-hop addresses has been slightly negative, and spending on these addresses is usually higher than income. Although the initial net capital flow of network fluctuations, but over time, has gradually reduced its volatility, this may be due to the bitcoin production by half.
In recent years, the fluctuation of the net capital flow of 0-hop address has continued to decrease. In the past few months, the historical negative value of net capital flows has reversed, with inflows being slightly larger than outflows since the last halving.
The net capital flow of 1-hop addresses fluctuates more than the capital flow of 0-hop. Like the net fund flow of the 0-hop address, the net fund flow of the 1-hop address is usually negative. These capital flows have experienced a waning volatility, suggesting that the impact on the liquidity of the miners gradually reduced.
Another tool we analyze cash flow is held Bitcoin miner changes in inventory levels or MRI, it is the ratio of the miners outflow and inflow of miners. The 0-hop address MRI can be used to measure whether miners deposit funds in the mining pool wallet (less than 100%) or withdraw funds (higher than 100%).
Since the 0-hop address is closely related to cash flow and miners income, so in most historical periods Bitcoin network, MRI are maintained at a level close to 100%. The volatility of this indicator has gradually decreased as the volatility of the 0-hop address outflow weakened.
Compared with the 0-hop address MRI, the 1-hop address MRI can more accurately understand the relationship between the miners’ spending habits and income. In the entire historical record of the Bitcoin network, the flow of funds from 1-hop addresses has remained relatively stable, and two consecutive halvings have reduced the issuance. 1-hop address MRI has shown a rapid increase. Since the expenditure of about 1-hop address is higher than the income of the miners an order of magnitude, so the 1-hop throughout the network address of MRI in the history of a lot of time to reach the level of thousands of percentage points.
Next thoughts and actions
Miners holding money amount and the net amount of chain transfer indicators, bits credits miner influence network is waning. Despite this, they still contribute a lot of activity and control a large part of the total Bitcoin supply. Some indicators, such as total cash flow, also suggests dollars and Bitcoin miners denominated activities are increasing.
Bitcoin issue as the only direct recipients, miners and mining pools it is not easy to quantify the impact on the network as well as the indicators outlined in this article only touches the surface miners behavior. In the future, we hope to analyze the flow of Bitcoin funds from miners to exchanges, which can more directly measure its impact on the market. We also wanted to evaluate the supply of active miners address maintained, which will help filter out the Bitcoin network early loss of Bitcoin wallet and taking into account the different structure of each mineral pools, and ultimately the behavior of the miners more detailed Assessment.
Thanks to Celia Wan for his suggestions and editing work.
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