STX Mining Update: The First 5000 Blocks of Stacks 2.0
On January 14th, 2021 the Stacks 2.0 network launched after more than a year and a half in development. Daemon Technologies previously published an early report looking at the first 1000 blocks of the Stacks 2.0 mining market, which can be read here. We wanted to build on that initial analysis by taking another look at the Stacks 2.0 mining market at block 5000, which the network reached on February 26th, 2021.
There are three important things to note about this analysis compared to the last:
- There has been significant movement in the secondary market since our original analysis. For the purpose of this report, we used a secondary price of STX = $1.00 USD, a secondary price of BTC = $50,000 USD, and the cost of sending a BTC transaction = 150 Satoshis per byte.
- Stacking officially started after block 1000. Stacking is when STX token holders lock up their tokens, and are forwarded the BTC spent by STX Miners. To date, Stacking has rewarded over $2 million USD worth of real BTC to Stackers. (Source)
- The mining reward is halfway through the early bonus period. For the first 10,000 blocks of the Stacks 2.0 network, STX miners receive an extra 1000 STX for each block they mine. For this period, the mining reward per block equals 2000 STX + fees
With that said, some high level takeaways. Over the first 5000 blocks of Stacks 2.0:
- STX miners burned an aggregate amount of 9,611,672,420 Satoshis, or 96.1 Bitcoins, in order to mint 10 million new STX tokens.
- On average 1,922,344 Satoshis, or 0.019 BTC, were burned per block.
- 79 unique miners participated. Of those, 40 successfully mined at least 1 block.
- 6.1 miners competed per block on average.
For those who want to directly analyze the mining data themselves, we have made a publicly available spreadsheet here.
79 unique miners participated over the course of the first 5000 Stacks blocks, with an average of 6.1 miners participating per block. This is an increase of 20 unique miners from the number that participated in the first 1000 blocks, but the average numbers of miners per block decreased to 6.1 compared to 8.4 over the first 1000 blocks. The maximum number of STX miners observed in a single block was 28. This is up from a maximum of 20 over the first 1000 blocks.
Of the 79 miners that participated over the course of the 5000 blocks, 40 (51%) successfully mined at least 1 block. The chart below shows the distribution of wins among those 40:
While there are a number of participants in the STX mining market, two miners have so far won over 60% of the first 5000 blocks. This is something Daemon has been looking into, as our mission is to lower the barrier of entry to STX mining as much as possible. The reason for this concentration of blocks won by the same 2-3 miners will become more clear as we turn our attention to miner profitability.
STX mining has proven to be a very profitable endeavor for those who can mine consistently, over a sustained period of time.
Over the course of the first 5000 blocks, STX miners burned a total of 9,611,672,420 Satoshis, or 96.1 Bitcoins, in order to mint 10 million new STX tokens. On a per block basis, STX miners burned an average of 1,922,344 Satoshis, or 0.019 BTC, in order to mine 2,000 new STX tokens.
The below chart shows the number of Satoshis burned for each of the first 5000 blocks:
Over the course of all 5000 blocks, 96.1 BTC were burned to mint 10 million STX tokens. With a secondary market price of $1 USD for STX and $50,000 USD for BTC, there was an implied overall profitability of 108.1% for miners over the first 5000 blocks.
STX mining profitability has decreased over time, but not to the degree we expected. This is because, despite the glut in profitability that continues to exist for miners, new entrants have failed to come in and credibly challenge the largest incumbents. In order to better understand why, let's look quickly at the BTC spent and profitability for the top 20 miners:
The wide variability in both amount of BTC spent and the resulting returns from STX mining is pretty stark. This gives us an insight into why such an opportunity (in terms of profit) persists in this market: STX mining is a numbers game
Because of how the probability to win a PoX block works, miners need to be able to get the law of large numbers on their side in order realize the profitability that exists in the market. STX mining works by combining the amount of BTC each miner spends with a Verifiable Random Function. The more BTC spent, the higher the chances of being selected as the winning miner, but winning a block is always a matter of probability and never a sure thing. (more info)
To put it another way, STX miners need enough BTC that they can continue mining long enough to let probability run its course. The variability in returns observed by miners who committed less than 5 BTC across the first 5000 blocks is a direct result of this. The variability is the randomness, as these miners did not commit enough BTC across enough Stacks blocks to let probability play out.
Based on talking to current STX miners, looking at the network data, and Daemon's own anecdotal experience, we estimate an STX miner should have between $45,000-55,000 USD worth of BTC in order to mine STX sustainably and realize the expected profitable return.
Conclusion & Next Steps
The first 5000 blocks of the Stacks 2.0 show a mining market that is still very much in the early stages of developing. With almost 100 BTC committed and the Stacks chain functioning as intended across this initial period, there is a lot to celebrate. As the data highlights, however, there is still much work to be done.
STX mining needs to become more competitive. The data above draws a sharp conclusion for how: we need to work to lower the capital requirements to sustainably mine. Daemon's previous focus has been creating the STX Mining Bot, which was shipped for mainnet a few weeks ago. While the Mining Bot helps lowers the technical barrier to entry to STX mining, it does nothing to shift the capital requirements.
To address this, Daemon Technologies is changing Part 3 of the Mine to 1 Million STX Challenge to focus on a series of bounties to incentivize STX mining pools. The bounties will focus on both infrastructure to enable the creation of mining pools, as well as the successful operation and growth of pools. Each bounty will be for 100,000 STX tokens. More information to come soon.
For now, we thank you for reading and hope you found this valuable. If you're interested in STX mining or contributing to future analyses, please reach out to email@example.com.