Now, Slush Pool is celebrating the 10th anniversary of its first block 97834, which is an incredible decade.
However, this will not be a reflection of some self-feeling good about the past 10 years. Instead, this article will focus on our vision for the next decade, because this will be the decade that determines whether Bitcoin mining can remain meaningful. Major energy producers and even governments are increasingly involved in mining and more. The big Bitcoin ecosystem.
In fact, it is important to let people know that this shift is happening rapidly. Amanda Fabiano, director of Galaxy Digital, explained that miners obtain cheap electricity at different scales, “from small off-grid miners using electricity from the oil and gas sector to large-scale miners’ arbitrage where the underlying infrastructure can use power. Mining energy producers have begun a new challenge.”
After the continuous bear market in the past few years and the most recent decline in March this year, there is a reason for the miners that are still operating to come here. As Fabiano said, “Mining industry has graduated from elementary school, and miners are entering a new wave of professionalism. They provide creative solutions to achieve their goals.”
In the rest of this article, we will tell you how this industry-wide specialization has affected us, and our plan to adapt and solve some of the biggest problems that miners still face today.
The market is changing
When Slush Pool was established, the concept of mining pools was very simple: many small miners pooled their computing power to reduce the variance of their rewards. The greater the market share of the mining pool, the lower the variance of its miners should be.
Today, this is not how most pools operate. The value proposition of a typical pool is no longer to reduce the reward difference (that is, to reduce the reward interval), but to have no difference in nature (that is, continuous reward). The miner submits a proof of work to the mining pool in the form of shares (hash value is relatively close to the difficulty target), and the mining pool pays every reward, regardless of when the mining pool finds the block. This kind of reward scheme is called PPS, and it effectively enables the hashrate buyer to transfer all short-term variance risks from miners to mining pools.
Not only that, but the competition between mining pools is so fierce that large and medium-sized miners can negotiate with extremely low fees, so that even the PPS listing does not make much money. At the same time, the risks are huge.
As PPS becomes more and more common, the mining pools of the entire industry are developing in the direction of vertical integration-in addition to mining pools, diversification of income streams by providing other products to miners.
Braiins (the company that has been operating Slush Pool since 2013) is vertically integrated through Braiins OS+, an ASIC optimized firmware that helps miners increase hardware performance by 20% to 30%. Besides, this is only part of our future.
Commercialization of computing power
We believe that the trend that defines Bitcoin mining in the next 10 years is the commercialization of computing power. In short, corporate mining operators hope to reduce risks and obtain stable and predictable cash flow, just like traditional businesses, which is what they currently lack.
Of course, PPS payment stabilizes the BTC income of miners in the short term. However, due to the volatility of the two variables, BTC price and network difficulty, PPS did not reduce long-term risks.
Leo Zhang, the founder of Anicca Research and an industry leader on the topic of hash power financialization, put the current situation as a crossroads. He said, “This is a highly industrialized individual operation with a value of dozens of A billion-dollar ecosystem.” At the same time, miners rely on very primitive tools for risk management, and therefore bear most of the market risk. “
As long as miners pay electricity bills and other costs in local legal currency, Bitcoin price fluctuations will have a significant impact on cash flow. A huge price drop can turn a profitable ASIC into a useless money-burning machine in the blink of an eye. Similarly, a sharp increase in difficulty may cause the miners’ production costs to exceed the profit threshold.
Miners have invested millions of dollars in ASIC hardware, and it may take months or even years to generate a positive ROI, so the price risk and difficulty risk they face are extreme. It is basically a proof of stake embedded in the proof of work.
For miners, reducing this risk exposure is a clear requirement.
Zhang also saw the formation of this trend. He added: “Just like the capital market’s development of traditional commodity producers, Bitcoin mining has its own auxiliary tools to help miners better manage risks. This is a natural The next step.”
In fact, since the end of 2018, we have been working on building a platform to help them do this: a transparent computing power exchange platform where buyers can buy computing power from miners, and speculators can base their future value on computing power. Trading derivative contracts.
In 2021, Braiins will focus on facilitating computing power trading from the main operating pool. Both the spot market and the long-term and futures markets will enable miners to lock in the duration of a fixed return computing power contract.
This is the final piece of the puzzle that makes mining Bitcoin akin to producing other commodities such as oil, corn or gold.
How Stratum V2 (Lateral Protocol V2 Bitcoin) Works
Miners are usually portrayed as purely profit-driven operators. They actually don’t care much about Bitcoin, they just create continuous selling pressure in the market. According to our experience, this is far from reality. Many miners do more bitcoins and keep their profits in bitcoins instead of converting all their income into fiat currencies.
The United States Mining Corporation (GAM) is a good example. It helps oil and gas producers reduce emissions and combustion (methane emissions), and drives ASICs by consuming exhaust gas. GAM’s Marty Bent stated that they are “proud to contribute to the geographical distribution of computing power.” “We know GAM and many other consciously decentralized miners.
We expect that miners who use BTC for a long time will become the early collectors of Stratum V2 (Class Protocol V2) work negotiation (allowing miners to choose their own transaction set instead of just the pool). However, one of the more interesting aspects of the emerging computing power market is that they first redefine who can become a “miner.”
For Bitcoin practitioners and Bitcoin companies who do not understand the oil and gas industry or the relationship with hydropower station operators, by purchasing computing power and using Stratum V2 (Class Agreement V2), they will be able to provide computing power for the first time since the pre-ASIC era Contribute to the geographical distribution of No one can guarantee that someone will really seize this opportunity, but considering the inevitability of computing power commoditization, it is still an opportunity worth trying.
Bent summed up very well how this will shape a bright future, he explained: “A more mature derivatives market will allow us (at GAM) to hedge operational risks, and Stratum V2 will reduce the concentration of mining pools into a Bitcoin attack. The risk of the carrier.”
