The next 10 years of Bitcoin mining – Bitcoin Magazine

Today, Slush Pool celebrates the 10 year anniversary of the first block ever mined, Block # 97834. It’s been an incredible decade, and we’re proud to have excavated over 1.25 million BTC since then.

However, this will not be some good reflection over the last 10 years. Instead, this piece is going to focus on our vision for the next 10 years, because this will be the decade that determines whether Bitcoin mining can continue to be meaningfully devolved as publicly traded companies, energy producers and even big governments play an increasing role in the mining industry and largest Bitcoin ecosystem.

In fact, it is important that people know that this transformation is already happening quickly. Amanda Fabiano, head of mining at Galaxy Digital, explained how miners of different grades access cheap power, “from small-scale, off-grid miners, using waste gas from oil and gas fields, to large-scale miners owns their basic infrastructure with the ability to take advantage of power arbitration, for energy producers who are beginning to ask questions about bitcoin mining. “

After the ongoing bull market of the last two years and the latest Halving in May, the miners who remain active today are here for a reason. As Fabiano said, “The mining industry has graduated from its elementary school years and miners are embarking on a new wave of professionalism with creative solutions to achieve their goals.”

In the rest of this article, we will tell you about how this industry-wide professionalism affects us and our plans to adapt and solve some of the biggest problems that miners still face today.

The Market Is Changing, And So We Are

Back when Slush Pit was founded, the idea of ​​a mining pool was quite simple: Many small miners aggregate their hash power to reduce the variance with which they win prizes. The greater the market share of the mine, the lower the variance should be for its miners.

Today, this is not how most pools operate. Offering the typical value of the pool is no longer is reward variance (i.e., less time between rewards), but instead it is essentially no variance (i.e., ongoing rewards). Miners submit proof of work to pools in the form of shares (hashes relatively close to the difficulty target), and mines pay for each share, regardless of when the mine itself finds blocks . This reward scheme is called pay-per-share (PPS), and effectively makes pools hash rate buyers, moving all short-term variance risk from miners to mines.

Not only that, but the competition between mines is so fierce that medium and large-scale miners are able to negotiate very low fees, so that even with a PPS proposal there is little money to be made. Meanwhile, the risk is enormous.

With PPS becoming increasingly common, industry-wide pools are being driven towards vertical integration – diversifying revenue streams by offering miners other products besides just the mine.

We at Braiins, (the company that has operated Slush Pool since 2013), have integrated vertically through Braiins OS +, an ASIC optimization firmware that helps miners boost their hardware performance by 20 to 30 percent. Moreover, that is only one part of our future.

Hash Identification Rate

The trend that we think will define the next 10 years of Bitcoin mining is hash rate commuting. Simply put, enterprise mining executives want to reduce risk and have stable, predictable cash flows just like traditional businesses. That’s what they have at the moment.

Of course, PPS payments stabilize BTC’s revenues to miners in the short term. What PPS does not do, however, is reduce long-term risk due to the volatility of two other variables: BTC price and network difficulty.

Leo Zhang, founder of Anicca Research and an industry leader on the topic of hash power financing, categorized the current landscape as being at a crossroads, saying “it is a billion dollar ecosystem built on top of highly industrialized individual operations. Meanwhile, the miners rely on very primitive tools for risk management, and thus bear a lion’s share of market risk. ”

As long as miners pay their electricity bills and other costs in local fiat currency, BTC’s price volatility has a significant impact on cash flow. A big price fall can turn a profitable ASIC into a useless money-burning machine in the vicinity of an eye. Similarly, a steep upward difficulty adjustment can increase the cost of producing a miner above the threshold at which it is profitable.

With miners making multi-million dollar capital investments into ASIC hardware that can take many months or even years to generate a positive ROI, the exposure to price risk and difficulty is extreme. It’s basically proof of a stake embedded in a proof of work.

For miners, reducing exposure to this risk is a clear requirement.

Zhang also sees this trend shaping, adding: “Similar to how capital markets developed for traditional commodity producers, it is a natural next step for Bitcoin mining to have its own ancillary tools to help miners manage risks better.”

In fact, since late 2018 we have been working on building a platform to help them do just that: a transparent hash rate exchange where buyers can buy hash rate from miners and speculators can trade derivative contracts at a future value of hash rate.

See also

The team at Luxor has introduced Hashrate Index, a website that contains data that adds some transparency to the bitcoin mining industry.

In 2021, Braiins will pivot from operating the mine primarily to a stronger focus on facilitating hash rate exchanges, straight through spot market and in the long term through forward and future markets – enabling miners to lock up stable earnings for their hash power for the length of contracts.

This is the last piece of the puzzle that will make Bitcoin mining similar to producing any other commodity like oil, corn or gold.

How Stratum V2 Can Role Play

Miners are often profit-driven executives who don’t really care that much about Bitcoin and who only create constant sales pressure in the market. In our experience, this is far from a reality. Many miners are long on Bitcoin, and keep profits at BTC instead of selling all their revenues in fiat.

A good example of this long-BTC miner profile is Great American Mining (GAM), which helps oil and gas producers reduce vent and flare (methane emissions) by using their waste gas to power ASICs. Marty Bent from GAM said they were “proud to be contributing to the geographical distribution of hashrate production.” We know of many other miners who are aware of devolution such as GAM.

The miners’ long-BTC demographic are the ones we anticipate adopting the early negotiation of Stratum V2 jobs (allowing miners to choose their own transaction sets instead of just pools). However, one of the more interesting aspects of emerging hash rate markets is that they are redefining who can be a “miner” in the first place.

Bitcoiners and Bitcoin businesses that do not have an in-depth knowledge of the oil and gas industry or connections with a hydroelectric dam operator will be enabled to contribute to the geographical distribution of hash rate for the first time since pre-ASIC era by purchasing a hash rate. and using Stratum V2. There is no guarantee that anyone will actually seize this opportunity, but it is nevertheless worth enabling, given the inevitability of hash power commuting.

Bent nicely summed up how this can shape a bright future, explaining that “more mature derivatives markets will allow us to [at GAM] to hedge operational risk and Stratum V2 will reduce the risk of centralizing mining pools as an attack vector for Bitcoin. ”

The Show Is Going On

As we celebrate a decade of adding blockchain to the Bitcoin blockchain, we want to thank all the miners who have been with us over the years, from the early days with one server in Slush’s office to our Braiins team, who member of age 30. without Ion Čapek a Pavel Moravec today.

Looking at the changes ahead, we are excited by the opportunity to reinvent ourselves and adapt alongside other mining businesses as hash power financing takes place. A joy to the next 10 years of building in Bitcoin, and to the miners who make it all possible.

This is a guest post by Daniel Frumkin. They are solely their own opinion and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.