Blockchain Analysis

At the time of writing the latest Bitcoin block is at height 839,523, just 477 blocks from the next halving of Bitcoin’s block reward. In theory this should be in 79 ½ hours’ time; around 01:59 on 20^th April 2024 (UTC), but this is based on 10 minutes for each block. As discussed in my post Bitcoin Block Time Consistency, at that time the average (mean) block time from the genesis block was 9 minutes and 47 seconds which would result in the halving event occurring sooner.

The last difficulty adjustment was made at block 838,656 (21:17:33 10^th April 2024) and the next won’t occur until block 840,672 which will be after the halving.

Since the last difficulty adjustment, the average block time has been 586 seconds, or 9 minutes and 46 seconds. Based on this trajectory the halving event should occur in 6,678 seconds earlier than the aforementioned time on 20^th April 2024, approximately 12:08:47 on 20^th April 2024.

Extending the block time analysis back until the beginning of the year, the block time has been surprisingly consistent, with an average of 586 seconds; the same as since the last difficulty adjustment.

So how does this compare to Satoshi’s intent? With a 10-minute block time, and the genesis block being timed at 06:15:05 on 3^rd January 2009, the current halving would not be expected until 02:15:05 on 23^rd December 2024. The Bitcoin blockchain is therefore approximately 247 ½ days ahead of the designed schedule.

Back in February last year I wrote about Bitcoin’s block reward halving and when block rewards may reduce to zero based on the projection of block time (https://blockchainanalysis.co.uk/bitcoins-final-block-reward/). In that post I touched upon the requirement for transaction fees to reach a point where miners continue to be incentivised to mine despite low or no block rewards. At the time of writing we are at block 825303 and the next block halving event is at block 840000 (14697 blocks time / around 100 days) and therefore I’ve been revisiting the data with this in mind.

Between 2009 and 2015, transaction fees accounted for less than 1% of the miner’s rewards. From this point forward transactions fees have remained above 1%, peaking at an outlier in 2017 at 12.5%, I expect due to the bull market and limited/immature exchange options at that time. We have, however, seen an overall trend towards fees growing as a source of income for miners, something that will have to continue as the block rewards reduce.

The table below summarises the rewards afforded to miners since 2009 whilst the graph provides a visual representation of the same data (note the Y-Axis starts at 80% to better visualise the data).

As Bitcoin gains monetary value it continues to be more a store of value then a currency, I therefore do not expect that transaction fees will play a significant role as there are (relatively) few transactions taking place and more trades are handled by exchanges (which maintain their own ledger). The SEC’s approval of several Bitcoin spot ETFs will certainly contribute to this as ownership by institutions increases and, like exchanges, private ledgers track the ownership.

Despite the pessimism over the valuation of crypto over the year (“just” ~156% return for BTC), crypto has not been devoid of substantial events in 2023. The headlines have been dominated by the prosecution and conviction of Sam Bankman-Fried, and this story will continue into 2024 when he is sentenced.

November 2023 saw Binance founder and vocal crypto Changpeng Zhao (often known as ‘CZ’) step down as CEO and faced criminal charges in the US. He subsequently pleaded guilty to money laundering violations and will also be sentenced in 2024.

We witnessed the collapse of Silicon Valley Bank, a ‘crypto friendly’ bank, with ties to Circle who are responsible for the USDC resulting in the repegging of the stablecoin.

The introduction of Bitcoin ordinals also occurred, along with the debate whether it is good or bad for Bitcoin.

In more positive news for crypto, the long-running case of SEC v. Ripple Labs finally concluded with the court determining that XRP was not a not a security when sold on exchanges to retail investors. A major ruling in the crypto space and one which will undoubtedly be cited in future cases.

The positivity continued over the last few weeks of the year with the long-awaited Bitcoin ETF (Exchange Traded Fund) approval looking imminent. Several applications are with the SEC and the decision is expected in early January 2024.

But how did Bitcoin perform over the year?

In 2023 there were 153,415,993 transactions (141,472,918 SegWit and 1,1943,075 non-SegWit) contained in 53999 blocks. This led to an increase of 71,730,195 in UTXOs (Unspent Transaction Outputs). The average block time was 584 seconds (9 minutes and 44 seconds). Miners were awarded 360,925.31 BTC over the year, consisting of 337,493.75 BTC in block rewards and 23,431.57 in fees. The largest fee paid was in block 818087 when a fee of 83.65 BTC was paid to send 55.77 BTC.

How did this compare to 2022?

In 2022 there were 9,3106,378 transactions in 53188 blocks leading to an increase of 7,469,033 UTXOs. The average block time was 593 seconds (9 minutes 53 seconds). Miners were awarded 337,799.73 BTC (332,425 BTC in block rewards and 5,374.73 BTC in fees). The largest fee paid was in block 767482 when a fee of 3.45 BTC to send just 0.27 BTC.

With big events coming early in 2024 it promises to be another action filled year for Bitcoin and the crypto community as a whole.

I’m currently working through data stored on the Bitcoin blockchain for a future post. In doing so, I was surprised by the amount of seemingly random or meaningless data within Coinbase transactions. The obvious reason for this may be a type of encoding I am not familiar with, but these encodings often exhibit patterns which weren’t observed in many instances.

I researched potential reasons for this seemingly random data and I found in Andreas Antonopoulos’ excellent book ‘Mastering Bitcoin’ a discussion of Bitcoin’s nonce being insufficient to facilitate modern hash rates in combination with Bitcoin’s timestamp only being to 1 second precision.

The nonce is part of the Bitcoin block header which is intended to be modified by miners when mining to create a hash lower than the difficulty target. This is stored within the Bitcoin block header as a 4-byte (32 bit) value. 4-bytes allow for 4,294,967,296 unique combinations. Therefore a hash rate of ~4.3GH/s could exhaust the nonce possibilities within the 1 second before the timestamp could be updated.

In the early days of Bitcoin mining using CPUs hash rates were typically measured in MH/s (for example bitcoin.it reports an Intel Core i7 3930K – 6 core, 12 threads – achieving 66.6MH/s, or around 0.07GH/s) and were not close to exhausting the nonce possibilities within 1 second (it would take just over a minute). The move to GPU (Graphic Processing Units) did improve hash rates significantly, but they typically were still measured in MH/s. My trusty AMD Radeon 5850 I mined my first bitcoin on is reported to be around 430MH/s (~0.4GH/s) which from memory is about right. This would mean exhausting the 4-byte nonce would take around 10 seconds).

Then came ASICs (Application Specific Integrated Circuits). These specifically designed chips quickly pushed the GH/s barrier. Bitmain’s Antminer S1, first introduced in 2013, was advertised as achieving 180GH/s which would exhaust the 4-byte nonce in approximately 20ms. If the nonce was the only element which the miner could change, the miner would idle 98% of the time waiting for the next second to ‘tick over’.

Even my Gekkoscience Compac which is equipped with a single Bitmain BM1384 ASIC chip achieved around 11GH/s whilst only being powered by a USB port would be capable of exhausting the nonce in around 400ms.

For reference, Bitmain’s highest performance miner currently listed on their website is S19 Pro+ Hyd which is advertised as achieving 191TH/s (191000GH/s), over 1000 times quicker than the original S1, or over 17000 times quicker than my Gekkoscience Compac (although using 1750 times the power!).

To accommodate increasing hash rates beyond 4.3GH/s miners had to find other elements of the block to change to generate a different candidate hash value to compare to the target. Within the Block Header are the following six elements:

The Previous Block Header Hash and the nBits fields cannot be modified as the former would break the connection with the previous block whilst the latter would rule the block invalid as the target wouldn’t pass validation. The remainder are, however, modifiable to varying degrees. The Time and Version fields need to meet certain acceptance criteria and therefore the full range of values is not available to the miner.

This therefore leaves limited scope to accommodate the high hash rates of modern ASIC miners and ultimately leaves the Merkle Rook Hash to be changed. This cannot be modified directly (as the hash would not match the transactions present in the block), but the transactions can be modified to ensure the hash changes. An easy method of changing the transactions, without adding extra fees, is the modification of the Coinbase transaction essentially using the unlocking script field (ScriptSig) as an extra nonce, explaining the seemingly random data observed.