Derivatives Glossary

Bitcoin Mining Concepts

Hashrate

Hashrate is the speed at which a computer (i.e., ASIC, GPU, CPU) is completing an operation in a cryptocurrency’s code. It is measured in hashes per second. Common units of hashrate include:

• TeraHash per second (1 TH/s = 1 trillion hashes per second)
• PetaHash per second (1 PH/s = 1,000 TH/s)
• ExaHash per second (1 EH/s = 1,000 PH/s)

Hashprice

Hashprice – a term coined by Luxor in 2019 – quantifies how much a digital miner can expect to earn from a specific quantity of hashrate. Hashprice is the true value a miner gets paid for the commodity they produce, hashrate. Hashprice can be denominated in USD or BTC:

• BTC-Denominated Hashprice is a function of three inputs: the block subsidy, transaction fees and network difficulty.
• USD-Denominated Hashprice is a function of four inputs: the block subsidy, transaction fees, network difficulty and Bitcoin’s price in U.S. dollars.

Luxor’s Bitcoin Hashprice Index

Luxor’s Bitcoin Hashprice Index quantifies the expected value of 1 PH/s of hashrate per day on the Bitcoin Network. Luxor’s Bitcoin Hashprice Index uses a 144-block lagging simple moving average to account for transaction fees, and a simple average of the spot price for bitcoin on three US-based cryptocurrency exchanges to account for USD conversion. The block subsidy and network difficulty reflect current on-chain values.

Block Subsidy

The Block Subsidy is the amount of newly minted bitcoin generated in each additional block on the Bitcoin blockchain. The emission schedule sets out the block subsidy at each block and is determined by Bitcoin’s source code. Bitcoin’s subsidy started at 50 BTC per block and is halved every 210,000 blocks (roughly 4 years), until block 6,930,000 (projected in 2140) when the block subsidy becomes zero and mining revenue will come exclusively from transaction fees. The block subsidy is currently 6.25 BTC and the next “halving” is projected for April 2024.

Transaction Fees

Transaction Fees are the amount paid by bitcoin owners when they transfer funds to another address. They are collected by the miner or mining pool adding the block containing the corresponding transaction data to the Bitcoin blockchain. Transaction fees allow users to prioritize their transaction getting included in the Bitcoin blockchain. Bitcoin blocks can hold up to 1 MB of transaction data and miners have an economic incentive to include transactions with the highest associated fees. Transaction fees can vary depending on transaction volumes, network congestion, Bitcoin upgrades, layer 2’s, and transaction batching.

Network Difficulty

Network Difficulty is a quantitative measure of the probability of a miner or mining pool submitting a valid hash to the Bitcoin network’s cryptographic hash function (i.e., SHA-256). Higher network difficulty indicates a lower probability of a miner submitting a valid hash. Network difficulty is adjusted every 2,016 blocks (approximately every two weeks) to a level that targets an average block time of ten minutes. If network hashrate grows (declines) and blocks are found earlier (later) than 10 minutes on average over the previous period, the network difficulty will increase (decrease). Network hashrate / difficulty can vary depending on technological advancement, supply chain issues, geopolitical relations, and government regulation.

Derivatives Contracts

Forward Contract

A Forward Contract is made directly between two counterparties and typically can have two different outcomes: physical delivery or cash-settlement. Forward contracts are used extensively in traditional finance for commodities delivered at discrete times in the future, like corn, and continuously delivered commodities, like electricity, over defined intervals. Popular use cases for forward contracts include, but are not limited to: energy and agriculture forwards, currency forwards, equity forward contracts and forward rate agreements.

Deliverable Forward

In a Deliverable Forward (i.e., physically-deliverable forward contract) one party agrees to buy a commodity on a future date, at a fixed price. The other party agrees to deliver that commodity or asset at the fixed price and date.

Non-Deliverable Forward

In a Non-Deliverable Forward (i.e., cash-settled forward contract) the difference between the fixed price in the contract and the settlement value of the underlying commodity is paid in cash from one party to the other.

Posting Margin

Posting Margin (i.e., collateral) is a means to provide market integrity by reducing exposure to counterparty risk.

Luxor Hashrate Forward Specifications

Unit Hashprice

Unit Hashprice is the agreed upon hashprice for a quantity of hashrate on a specific date. Unit hashprice can be USD-denominated or BTC-denominated. Luxor Hashrate Forwards offer upfront and standard-daily payment.

Daily Hashrate or Size

Daily Hashrate or Size is the agreed upon amount of hashrate exchanged between a buyer and seller. The minimum size and increment for Luxor Hashrate Forwards is 1 PH/s/Day. Luxor Hashrate Forwards can be deliverable or non-deliverable.

Date(s)

Date(s) are the agreed upon duration of contracted hashrate. Luxor Hashrate Forwards use UTC date and times.

• Start Date represents the beginning UTC date of the trade.
• End Date represents the end UTC date of a trade.

Units

Units represent the size in petahash, multiplied by the number of days in the contract.

Notional Value

Notional Value represents the number of Units multiplied by the Hashprice.

Daily Settlement

Daily Settlement is calculated using the average of all 15-second price prints from Luxor’s Bitcoin Hashprice Index throughout the UTC day.

Margin Requirement

The Margin Requirement is determined dynamically and changes every day according to Luxor’s linear margin schedule. As each day passes, margin is eligible to be returned and credited to your account, assuming losses for that day are not larger than the margin eligible to be returned.