Cryptocurrency Miners Have Made Over $330 Million Mining Empty Blocks

Cryptocurrency miners have, across the most popular proof-of-work (PoW) blockchains, made over $300 million mining empty blocks, not securing their network. The problem has been slowly decreasing, however.

According to blockchain research firm Diar, revenues coming from empty blocks were a “negligible portion of total revenues,” but have surpassed the $300 million mark.  In total, miners have made over $21 billion since the start of each blockchain, with Bitcoin accounting for over half of that amount.

The report reads:

Despite a year-on-year decline in the number of empty blocks being solved for Bitcoin, miners have now exceeded $100Mn in revenue since 2012 providing no real value to the network

Per Diar’s report, the number of empty blocks being mined across the cryptocurrency space has halved since 2016, and dropped by almost 20% last year, compared to 2017. In total, Litecoin has rewarded miners with $125 million for solving empty blocks, while Ethereum rewarded them with $113 million, and Bitcoin with little over $100 million.

Ethereum miners, the report adds, earned over $67 million from empty blocks in 2017, when the prices of most cryptocurrencies surged to new all-time highs. This, per Diar, is “by far the greatest reward for a full year across all blockchains.” Since then, ETH has seen a 95% drop in empty blocks mined.

Mining less empty blocks has been helping the Bitcoin network’s fees get lower, as “more blocks are finding transactions.” Compared to Bitcoin, BCH has seen an additional 3,335 empty blocks since August of 2017 – when it forked off the Bitcoin blockchain – despite having less transaction volume.

The report adds the figures should be alarming, as miners have essentially been earning the equivalent of $5 million per month for doing nothing.

The value that is being rewarded for empty blocks should strike alarm bells as revenues across major networks have earned miners for Proof-of-Nothing with $335Mn - the equivalent of $5Mn per month.

PoW-based blockchains reward miners with a specific amount of cryptocurrency per mined block, along with the fees from the transactions included in said block. Diar notes that while the fees today are a small incentive for miners, as rewards drop because of halving events, they will matter in the future.

Fees on the Bitcoin blockchain notably hit an all-time high in December of 2017, when BTC itself got close to the $20,000 mark. Since then, they’ve been dropping because of a decrease in empty blocks, SegWit adoption, transaction batching, and increased Lightning Network adoption.

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U.S. CFTC Reportedly Investigating BitMEX for Unlawful Derivatives Trading

The U.S. Commodity Futures Trading Commission (CFTC), the American agency charged with regulating futures markets, are investigating the BitMEX cryptoasset exchange for allegedly allowing U.S. persons to trade on its platform, according to anonymous sources speaking to Bloomberg.

The investigation has already been underway for “months,” and has not been made public by the CFTC. U.S. persons are barred from trading securities, derivatives and futures products on exchanges not regulated by one of its regulatory agencies. The BitMEX exchange is registered in Seychelles, an island archipelago nation in the Indian Ocean.

BitMEX have for some time blocked connections coming from the U.S. and Québec, as well as several other countries, and even recently updated their terms of service to further highlight this standard. Yet it remains easy to bypass this geoblocking with the use of a virtual private network (VPN).

A spokesperson for BitMEX told CryptoGlobe:

"HDR Global Trading Limited, owner of BitMEX, as a matter of company policy, does not comment on any media reports about inquiries or investigations by government agencies or regulators and we have no comment on this report."

VPNs and Crypto Exchanges

CryptoGlobe considered this issue in detail early in 2019, and found BitMEX to be at risk of precisely such an investigation based on historical example and industry experts’ opinions.

A September 2018 report from the Office of the New York State Attorney General (OAG) on general performance of many top cryptoasset exchanges wrote on the subject of VPNs: “platforms must take reasonable steps to unmask or block customers that attempt to access their site via known VPN connections.”

The contest between VPNs and entities trying to block VPNs is an ongoing and complex battle. It remains a question however, whether BitMEX, beyond blocking IPs originating from unauthorized countries like the U.S., institutes any further measures to prevent those users from connecting using basic routing tools.

Nearly a year ago, U.S. authorities seized the domain of 1Broker, a Marshall-islands based exchange offering services similar to BitMEX’s to offering unapproved services to U.S. persons. 1Broker was well known for allowing U.S. IPs to connect without even a VPN to mask the origin.