Why BCC will not have much impact on BTC mining?

In recent days, BCC mining profit has exceeded BTC, and a lot of computing power has been switched to BCC, resulting in faster BCC block generation. Yesterday, BCC generated dozens of blocks per hour. At the same time, BTC's block generation speed has slowed down. For a period of time, BTC only generated one or two blocks per hour.

In the short term, it will be inconvenient for BTC users: the waiting time for confirmation will be longer, the mining fee will increase, etc. However, in the long term, this situation will make BCC very unstable. The reasons are as follows:

Some assumptions in this article: This article assumes that all or most miners are chasing short-term profits, and they will switch between different blockchains without any loss, not counting that they have to wait 100 blocks before spending their block rewards. This article also assumes that BTC block rewards are more valuable than BCC block rewards, which is indeed the case at the time of writing. BCC and BTC reward each block is 12.5 coins, and the price of BTC is 6 times that of BCC. In addition, BTC blocks contain more mining fees. Although the actual situation is more complicated than this, these assumptions are basically in line with reality.

Normal mining

The main purpose of mining is to make a profit. Miners invest resources (time, electricity, hardware, etc.) to mine and get rewards. Mining profitability depends on the value of the block reward and the difficulty of mining. The lower the difficulty, the lower the resources required to mine a block, and the higher the difficulty, the higher the resources required.

It is worth noting that the number of miners (computing power) has no effect on short-term profitability. For example, if there are many miners mining BCC, this means that blocks are mined faster during this period until the next difficulty adjustment. The difficulty adjustment for both BCC and BTC is 2016 blocks, which "should" be about two weeks. If 2016 blocks are mined in less than two weeks, the difficulty will be adjusted up, and the mining of the next 2016 blocks will be more difficult. If the mining time of 2016 blocks is greater than two weeks, the difficulty will be adjusted down, and the mining of the next 2016 blocks will be easier.

The difficulty is adjusted based on how much faster or slower blocks are being produced than they “should” be, and can be raised by a factor of four or lowered by a factor of four.

BTC VS BCC

Currently, the reward value of a BTC block is seven times that of BCC, so only when the difficulty of BCC is one-seventh of BTC or lower will it be more beneficial for BCC mining. (This has already happened in the past few days)

If this happens, something interesting will happen. It will be more profitable to mine BCC at a certain time, and it will be more profitable for all miners to mine BCC. Most miners will stop mining BTC and switch to mining BCC.

Of course, this is not sustainable. If too many miners mine BCC, then 2016 blocks will be mined very quickly (this has already happened), so the next difficulty adjustment will come very soon, just one or two days (this has already happened). Moreover, because the blocks are mined so quickly, the difficulty will increase a lot: perhaps four times (this has also happened).

This is where the problems with BCC began to arise. At this time, the difficulty of BCC was too high, and mining on the BTC blockchain became more profitable again. Therefore, after BTC experienced a two-day drop in hashrate, all miners returned to the BTC blockchain.

The difficulty of mining BTC is still as high as before. The mining of the 2016 blocks has not become faster, and it is the same as before. Therefore, there is not much change after the mining of these 2016 blocks. Mining BTC blocks is still more profitable. Miners who pursue profit maximization will still mine on BTC.

After another difficulty adjustment cycle, there is still not much change, and BTC is still the most profitable blockchain for miners.

However, it is not the most favorable for BCC mining at this time, and the BCC blockchain will be stuck.

BCC's Solution

BCC has its own solution to this problem. BCC has its own emergency difficulty adjustment plan: if less than 6 blocks are found within 12 hours, the difficulty adjustment will drop by 20%. This will quickly reduce the difficulty to normal levels.

However, this solution is not perfect. First, it still requires at least 6 blocks or more to be mined to reduce the difficulty. This means that miners must insist on mining on BCC at a loss, which is not in their short-term interests. Second, miners who don't like BCC can make trouble - mining on BCC to prevent it from adjusting the difficulty.

Even if some miners mine on BCC towards the difficulty adjustment, they will fall into the same scenario as above after a while: BCC has higher rewards for a few days, then the difficulty skyrocketed, then the BCC blockchain got stuck, and then BCC miners mined at a loss to keep it alive, and so on.

Interestingly, this situation is beneficial to most miners. Some miners will not care about short-term interests and will wait until the difficulty of BCC is adjusted. Once the difficulty is adjusted, most miners will switch to BCC and mine BCC for one or two days. As long as there are buyers for BCC, this cycle is very beneficial to miners.

Other solutions

This solution is not new. An early altcoin called Namecoin faced a similar problem in 2011. When computing power increased dramatically, its blockchain got stuck, and its miners persisted for several months at a loss until the next difficulty adjustment. This cycle repeated several times, and finally Namecoin fixed the problem by "mixing mining" with Bitcoin. Now all Bitcoin miners can use their own Bitcoin computing power to automatically mine Namecoin without switching blockchains. Many Bitcoin miners do the same.

This problem faced by Namecoin is also the main reason why Charlie Lee, the founder of Litecoin, decided to use the Scrypt algorithm. He believes that altcoins cannot compete with Bitcoin in SHA256 computing power, and will eventually lead to such unstable results. Using a completely different algorithm, miners will no longer switch between the two chains, thus solving this problem.

Other altcoins like Ethereum also have faster difficulty adjustment mechanisms, and although this may still result in miners mining at a loss, this situation will only last for a few hours or days) - not weeks or months.

If BCC wants to adopt such a solution, it will have to conduct a hard fork. Or its block reward value is much higher than BTC, which can also solve the problem.