What Dogecoin (of all cryptocurrencies) is highlighting is the huge importance of incentivizing the labor force to stay and continue providing security and utility. With each halvingday Doge has gone through, this has led an exodus of labor elsewhere, sometimes to competing chains like Litecoin.
Again, a halving day is when the network informs the labor force that they are now receiving a 50% wage cut.
One common refrain that some Bitcoin advocates have stated in the past is that Bitcoin does not have a similar incentives issue. As I have described in numerous articles and papers, this is false.
For instance, below is data from the Litecoin Hashrate statistics database at Bitinfo Charts. The numbers expressed represent the collective hashing power of the Litecoin network:
- 576.8 megahash/s on November 25, 2012
- 572.62 megahash/s on November 26, 2012
- 578.92 megahash/s on November 27, 2012
- 687.47 megahash/s on November 28, 2012
- ——— Bitcoin Halving Day ————
- 1.11 gigahash/s on November 29, 2012
- 1.28 gigahash/s on November 30, 2012
- 1.14 gigahash/s on December 1, 2012
- 834.75 megahash/s on December 2, 2012
What we see here is that some marginal miners that were previously hashing on the Bitcoin network left and began providing their labor on a competing network (Litecoin) that was temporarily more profitable to them (or at least, what they may have seen as future profitability relative to their costs).
These were likely GPU-based miners as FPGAs were increasingly being acquired and used by larger Bitcoin mining farms. Remember, while there were some proprietary ASICs that were developed and used in this time frame, they were not available to the public at-large — the first ASICs that were sold to the public (from Avalon) did not come online till the end of January / beginning of February the following year.
Below are the corresponding dates on the Bitcoin network using the same database:
- 24.65 terrahash/s on November 25, 2012
- 26.52 terrahash/s on November 26, 2012
- 25.29 terrahash/s on November 27, 2012
- 29.47 terrahash/s on November 28, 2012
- ——– Bitcoin Halving Day ———
- 28.2 terrahash/s on November 29, 2012
- 21.71 terrahash/s on November 30, 2012
- 28.31 terrahash/s on December 1, 2012
- 24.19 terrahash/s on December 2, 2012
The chart below is a visual representation of this phenomenon.
I have described the reasons for why this has occurred in the following articles:
- What Dogecoin Must Do to Survive at CoinDesk
- Bitcoins: Made in China (pdf) (BM)
- Will colored coin extensibility throw a wrench into the automated information security costs of Bitcoin?