How to Further Decentralize the Hashrate

After the China ban, are there too many miners in North America?

Introduction

An important topic that was discussed on another mining panel during the Bitcoin2022 conference was “How to further decentralize the hashrate?” An important characteristic of bitcoin is that it is decentralized in all aspects. From bitcoin users, to developers, to node runners, and especially amongst miners.

The dangers of centralization amongst miners has been a hot topic when a majority of hashrates were coming out of China. But ever since the final China ban on mining in 2021, a lot of miners took their operations outside and into North America. So now is there too much hashrates coming out of North America?

A panelist consisting of the below industry leaders took the time to chat about this burning question.

Whit Gibbs CEO, Compass Mining

Bob Burnett CEO, Barefoot Mining

Stephen Barbour Master of Hash

Ryan Condron CEO, Titan

Difference between decentralization and distributed

To start off, there are a few factors to consider when discussing “decentralization”:

  • ASIC manufacturer
  • Pool Ownership
  • Mining farm ownership
  • Ownership of energy

Also, it is important to note the differences between decentralization and distribution. Distributed, in the context of hashrates, can mean hashrates being distributed in different geographic areas. Whether this is referring to hashrates being spread out in different areas of a country or even different areas of a state. As long as hashrates aren’t in one specific location, then it is by definition distributed. But decentralization takes it to a whole different level. By being decentralized, the ownership factor takes precedence over the location. Ownership of hashrates, mining farms, and mining pools can determine if hashrates are truly decentralized. If we look at it from the context of pools, well one can make the argument that the top 5 major mining pools own a majority of hashrates. And it’s this factor that we need to worry about.

Is mining centralized now?

Burnett is personally worried about centralization in the US as more and more mega-farms start to come online. As mentioned briefly before, China decided to ban all bitcoin miners out of the country in mid-2021. This set off a huge exodus of bitcoin miners out of the mining-rich region of Sichuan. Many of them went to Iceland, Russia, Kazakhstan, and even Southeast Asia. But a majority of them went to North America due to favorable local regulations and a vibrant bitcoin community. But since the speed of mining farm development and construction is a lot slower than it is in China, many of them weren’t able to come online right away.

But in 2022, many of them are poised to open back up with a vengeance. And this is what Burnett is worried about. Since mega-farms are at times owned by the mining pools or even big institutions, are the mega-farms essentially in the control of a few hands? Are these institutions focused on what is right for bitcoin? Are these institutions controlled by the government? Are these mega-farms just making the big players even bigger?

BTC.com

Condron pointed out how most hashrates are controlled by 5 major pools. At the moment, the top 5 major mining pools for bitcoin are Foundry USA, Antpool, F2Pool, Binance Pool, and ViaBTC. They own about 70% of the global network hashrate. This should be an alarming amount to some as this is what is considered over the 51% attack threshold.

How to further decentralization?

Barbour mentioned that not only should miners be using downstream (aka peak privacy) energy supplies, but also upstream (peak efficiency) too. He compared ASICs to being like engines. Eventually, they will be a commodity and much cheaper for the retail market. Barbour’s company, Upstream Data, produces specialized outdoor boxes for at-home miners to house their ASICs in a safe and efficient manner. These boxes allow for the ASICs to run cool, and secure, and to trap the sound from coming out.

Barbour also stated to put it into perspective, bitcoin since the start has been decentralizing, slowly but surely. So don’t rule out home mining ever. Even though home mining doesn’t get the attention anymore due to the mining farm industry, that doesn’t necessarily mean there aren’t home miners. It’s probably bigger than what it was before and this should be expected to increase.

Gibbs “Everyone needs to be running an ASIC”

Whit Gibbs, who is the founder of Compass Mining, reminded us that everyone should be running an ASIC machine. If you are holding bitcoin, then you should run an ASIC as well. It’s part of the holistic nature of being in bitcoin. Besides holding your own bitcoin private keys, one should also run their own node, and mine their own bitcoin. That is truly the complete bitcoin experience of self-sovereignty.

Burnett would love to see all large-scale mining farms have their own mining pools. And for every bitcoin stakeholder to have their own mining pool.

Conclusion

The one thing that these panelists can conclude is that home mining needs to be more prevalent than large-scale bitcoin mining farms. If the ownership of each hashrate is in the hands of 1 person, decentralization can be further exercised in a way that is meant for the bitcoin network. But if we keep throwing ASICs to large-scale farms, then decentralization will become less and less. Both are needed to keep mining improving and scaling, but home mining needs to have more importance on the network.

Financialization of Mining

Mining makes money, but first it needs money…

Bitcoin2022 hosted many amazing panel sessions to learn more about some of the best in the industry. There was a whole stage dedicated to panel discussions on mining. And that’s what we’ll be bringing to you all. We’ll be recapping some of the best mining panel sessions into an easy to read format so that you can all be caught up with some of the best insights and takeaways discussed at Bitcoin2022.

In this blog, we’ll recap the the panel session titled “Financialization of Mining” featuring:

Brian Wright, Galaxy Digital

Ethan Vera, Luxor

Zachary Cefaratti, Dalma Capital

Leo Zhang, Anicca Research

So what does this exactly mean? Well it refers to the financing and capital raising amongst miner companies. We all know mining can be very capital intensive. There needs to be enough money to purchase ASICs, a support and maintenance staff, land, buildings, and other engineering infrastructure to keep those ASICs churning. This all can total to a couple of million dollars real quick. Miners need to be able to raise capital in order to fund these operations. And lenders and other traditional capital financiers are attracted to the kind of returns they can expect from such a booming industry. This is where the two meet to agree on what type of capital financialization is need to start mining.

The panel session had a bunch of great topics which have been summarized and broken down below.

State of the Mining Capital Markets

The state of the capital markets for mining is undoubtedly the strongest it has ever been. And every year that maturing increases to the point of attracting more institutional investors in the space. Some may even say the maturity and efficiency of capital markets for mining may need to be even more efficient than the efficiency of miners themselves. Lenders need to be in the clear as to what they are investing in. With that, miners need to be transparent to lenders as to the type of returns they should expect. Despite bitcoin’s popularity rising over the past year, there still is a misconception of what mining is amongst traditional financiers. And this is where miners need to be able to close that gap through proper communication.

Back in 2018, many miners had a hard time raising money. It was hard just to get a loan for about $2 million dollars but now you’ll see many mining companies raise over $40 million dollars. Miner companies have been the only sector of the crypto space to see companies go public on the stock market as well.

Up until now, there has been more equity-based financing than debt-based financing. But debt-based financing is starting to see an uptick due to open lenders. And this spawns new financial innovations such as ASIC-backed loans. This new type of financing allows miners to put up their ASICs as collateral for funding. ASICs inherently have value and have become a secondary commodity behind bitcoin itself. And with ASICs also having a healthy market, lenders and financiers can feel more comfortable using it as a form of collateral for their money. Sometimes the mining company’s infrastructure and land are used as collateral, in a similar sense as other traditional industries.

NAV of Miners

The NAV of ASIC miners was also a strong talking point during the panel session. For those who do not know, NAV refers to the net asset value. Essentially it’s viewed as the current market price one could purchase an ASIC miner for on the open market. This metric is quite important if ASICs are going to be used as collateral for financing purposes. It’s the same way as to how a house is used for collateral on a mortgage. If the borrower, or miner, would default on the loan, the lender would come in and own all the ASICs.

It’s a challenging collateral to value so lenders and financiers rely on the NAV of an ASIC. And sometimes they are overvalued due to high optimism. For example, some miners are getting NAVs of $300 — $700 per TH despite being able to purchase ASICs for an average of $80 per TH on the open market. Their financiers and lenders need to be careful and look at certain factors. Financiers need to discount ASICs that haven’t been turned on yet or ASICs that haven’t even been delivered yet.

It’s also prudent for lenders and financiers to analyze the mining company’s team itself. What is the team background like? Do they have experience mining? How long have they been mining? These questions are just as important as the ASIC miners themselves. And sometimes it just comes down to how much risk tolerance these financiers can take. If their risk tolerance is large, they are willing to work with the mining company more.

Hashrates

Ethan Vera and Leo Zhang have always been a proponent of hashrate contracts. Although this hasn’t really been accepted by the market yet, Ethan made a verbal push that he thinks it will become more important in the next coming years. Eventually, it will become more prominent and investors will realize how useful it can be for miners themselves. Being able to hedge your hashrates and buy futures on it can definitely be a great method for miners to protect themselves during a bear market.

Also, investors need to realize that hashrates are attractive due to their increased physical ties as compared to bitcoin. It touches on renewable energy, Moore’s Law, chip production, and other physical real-world topics that can influence hashrates.

What’s Next

The future looks bright for miner financing. Lots of traditional and institutional players are coming in to provide funding and loans of all sorts. But it’s also good to know that miners need to realize there are a lot of other financing options that they can take advantage of. Bitcoin native DeFi is also going to play an integral role in future markets. Financing the old, traditional way will probably fade away in the next few decades.

It will also be interesting to see if there will be a trend in M&A (mergers and acquisitions) activity amongst miners. We could expect to see many miner companies struggle during a bear market, which at the same time presents great M&A activity. And the last thing the industry needs to focus on is providing miner financing globally. If a lot of the miner financing is just concentrated in North America, hashrates will just be centralized within this continent. Financing needs to stretch globally to ensure there is globalized decentralization.

State of the ASIC Market

What’s next for ASICs?

The annual Bitcoin conference, this year dubbed Bitcoin2022, always brings out the best and brightest of bitcoiners to the forefront. It’s usually the most anticipated bitcoin conference of the year and probably the longest-running bitcoin conference in history. The focus and theme are squarely on bitcoin but you’ll see a few “crypto” people wandering the halls as well.

The conference hosts dozens and dozens of panelist sessions boasting experts to share about some of the old and new things happening in the space. They touch on topics such as government regulation, open-source development, security, wallets, exchanges, and of course…MINING!

In the next few blogs, we’ll be recapping and sharing some of those specific mining-themed panel sessions with our community in a way that is informative and educational. Mining is constantly evolving and it is our duty to be on the top of the cutting edge tech to increase our competitiveness as well.

For this blog, we’ll start with talking about the state of the ASIC market. Below are the major talking points discussed around this topic during the panel discussion featuring Chris Mansano, Kristy-Leigh Minehan, Nishant Sharma, Yao XianJun, and Michael Francis.

What is the general outlook of the ASIC miner market?

The general consensus is that newer generation ASICs, such as the S19 and S19 Pro+ Hydro, are looking ready to be shipped out this year. These new ASICs boast a capability of churning out over 100 TH/S with the S19 Pro+ Hydrop capable of hitting 200 TH/S. The big manufacturers such as Bitmain, Canaan, and What’s Miner all seem to have a positive outlook on getting their miners shipped out in time for customers. This is of course contingent on any sporadic covid lockdowns and the what not, but for the most part, most manufacturers have a strong outlook this year for their particular ASIC models.

Are we going to get smaller ASIC chips?

The takeaway is that moving from a 7 to 9-nanometer chip size to something smaller, such as a 5-nanometer, isn’t really grabbing the attention of miners. And in fact, most of them have a neutral view on this, as if it’s not an important metric they are excited about. Rather they see getting to a small chip size is going to take longer than expected. So in actuality, a smaller chip size really isn’t something they are excited about.

Most miners anyways are extracting more value from the ASIC machine by doing their own physical adjustments and tampering with the machine once they receive it. This is common practice amongst miners. By tinkering and performing experiments with the ASIC machine, some miners have been able to gain more performance compared to those miners who just use the machine as is from stock.

So although a smaller ASIC chip size may sound appealing to outsiders and new miners, many OG miners have their own way of extracting more performance from each individual ASIC miner.

What has been the difference between the mining market of 2016–2018 compared to 2020 to 2022?

The mining market during the years between 2016–2018 can be characterized as still being green. Green means very very early. Many people getting into the space still didn’t understand the notion of mining, let alone understanding how bitcoin works. There was less education out there when it came to mining. A proper framework and blueprint for scaling industrial-sized mining farms just weren’t available or documented.

Local jurisdictions and local regulations are also more mature now. They understand the concept of mining and have some basic legal framework in allowing more leeway for new miners to come in and set up shop. What’s been learned in the past has been evolved in a way now to benefit both miners and the local community.

Mining manufacturers during that time as well weren’t probably scaled to handle hundreds of thousands of miners. It was a time when the bitcoin surge was quite unexpected and underestimated amongst many miner companies.

When we fast forward to the years 2020 to 2022, manufacturers have definitely been able to scale up operations, but the biggest setback was the pandemic. The pandemic, unfortunately, closed down a lot of operations and factories. Supply chains were cut short and disturbed. People were unable to leave their homes to see the whole process through.

Trends for mining at home.

We’re starting to see a lot of mining come back to the comfort of home. Many people new in the space that truly believe in the altruism aspect of bitcoin want to mine bitcoins on their own rather than having their miners “hosted” somewhere else. But despite the inconveniences ASIC miners may bring to a household, there have been many ingenious setups to mitigate the loud noise and energy consumption coming from ASIC machines.

There have been home mining trends such as immersion cooling, where ASICs are sat in a tub of special liquid allowing the miner to still run while muting the noise. If anyone has ever tried to run an ASIC machine at home, they’d be quick to realize the annoyance of the noise it can bring.

What to look out for from new manufacturers in the space?

There have been many new chips and ASIC manufacturers coming into the industry with the hopes of disrupting the power players of Bitmain and others. But there are some red and white flags people need to be aware of before doing business with any of these new players.

Red Flags that you need to look out for:

  • Do they open source their tech?
  • Can they explain how their tech works?
  • Does their tech look similar or different from their competitors?
  • Who is part of their founding team?
  • How do they plan to scale?
  • What is their roadmap?

All in all, ASICs still have a bright future in this space. It’s been the longest-running technology used for mining over the past few years and they seem to be staying for a lot longer. As in the past, CPUs, GPUs, and FPGAs were once a fad but then quickly faded away due to being obsolete, one can only wonder when ASICs lifetime will take an end. But for now, there is nothing more fitting than loud humming ASIC machines and bitcoin mining.

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Will bitcoin ASIC miners still be dominated by the Chinese?

Bitcoin mining, for the majority of its current lifespan, has been dominated by one country in almost all aspects. That would be the country of China. At one point in time, China dominated the global bitcoin mining hashrate with over 65% of all hashrates coming from a bitcoin mine located within the borders of China. But like with everything, the tables turn.

Last year around May, the inevitable came as the Chinese government banned all bitcoin miners from mining in China. Almost all the large scale miners were forced to shut down and move operations overseas. Most of them went to the US as crypto friendly regulations started to arise with the popularity of crypto during the 2021 bull run.

At the moment, the large majority of bitcoin mining hashrates are coming from North America, which includes the US and Canada.

But China still dominates in another area of bitcoin mining. And that is bitcoin ASIC miner manufacturing and chip design.

The large behemoths of Bitmain and MicroBT have been dominating the ASIC space for the majority of bitcoin’s life. Early movement, proprietary design, strong supply chain, agile manufacturing, and years of experience have given both Bitmain and MicroBT a large moat in their competitiveness.

Along the years, a few companies have tried to come out with their own ASIC design and architecture only to quickly realize that they are no match for the ASIC kings.

But just earlier this year, Intel announced their intention to manufacture a rival chip to Bitmain’s. At a mining initiative earlier this year, Intel revealed their first-generation BonanzaMine chip and is ramping up for the second generation. This made huge news in the mining scene as Intel’s reputation gave this announcement strong credibility.

A few mining companies have already made purchases of the Intel mining chip, such as Block Inc., Grid Infrastructure, and Argo Blockchain. They expect to be able to receive the new chips later this year in 2022.

Many people have already speculated that Intel’s entry into the bitcoin mining scene could weaken the Chinese manufacturers’ pricing power and dominance. Now that many miners are located in North America, proximity to the California-based Intel could improve supply chain movements and maintenance care extended to buyers.

In any industry, competition is healthy. It motivates innovation, newcomers, adaptability, and the long-term sustainability of the industry. Many believe Bitmain and MicroBT have been the leaders for too long and think that new rising competition could help the industry overall.

One aspect that miners are looking forwards to is the fixed pricing model of Intel’s chips. At the moment, Bitman and MicroBT only supply their ASICs on a variable pricing model. This uncertainty is sometimes unwarranted from buyers and large-scale miners that need confidence in pricing to balance profitability.

“Prices of pre-ordered machines are updated every day within that range based on the manufacturers’ internal pricing models. Bitcoin’s spot price and the payback period, which is the time needed to break even, are key factors in these models” — Nick Hansen, chief executive of Seattle-based mining pool and hardware brokerage company Luxor.

Tong Lai, head of Singapore’s Babel Finance which provides lending services for Bitcoin miners, has stated that Chinese miner makers do not sell machines at a fixed price. The reason being is that they do not have much control over its suppliers’ pricing costs. This disables them from having future certainty to prices and profits.

Details on Intel’s second-generation chip, such as power efficiency and pricing, are yet to be available and some miners are skeptical of the significance of Intel’s entry into the industry. Intel revealed its first-generation chip has the power efficiency of 55 joules per terahash falling far behind Bitmain’s latest model, according to Intel’s paper submitted to the International Solid-State Circuits Conference. The details on its second-generation product, which is what the buyers are purchasing, will be released at a later time, a spokesperson from Intel told Bloomberg. (1)

But familiarity and location are a huge plus for North American miners. Intel, being a world leader in many aspects of the computer industry gives miners the assurances that Intel puts quality at its top priority. The location also allows Intel to provide enterprise-grade maintenance programs for miners which may allow for mining rigs to have a longer shelf life.

Time will tell on whether Intel can pull some market share away from Bitmain and the other Chinese ASIC manufacturers. The chip and semiconductor manufacturer market share are still dominated by a few companies, let alone the bitcoin ASIC miner space. There is a great piece that summarizes the current state of the land when it comes to semiconductors done by Compass Mining which can be found here.

Intel is going to need a lot of resources and networks in order to break in and make a huge impact in the mining scene. If they really are able to get a large market share in the US, then they could have some positive momentum. But if miners all over the world are still content with using miners from the existing powerhouses of Chinese miners, then Intel is going to have an uphill battle.

As stated before, there’s already been a lot of teams trying to take down the leaders of the bitcoin mining space, but going up against them is like going up against Goliath. They have the experience, networks, knowledge, and agility to navigate in this industry. First mover advantage is also a key factor.

Bitcoin Mining in Malaysia

How Malaysia may take China’s mining crown of Asia.

We’ve all seen it by now. Back earlier this year, a viral video showing a steamroller in Malaysia crushing and obliterating hundreds of ASICs was the talk on social media. Crypto Twitter became captivated by the tenacity of this act with many influencers and KOLs feeling the pain of someone daring to destroy the tools used to mine bitcoins. An act of treason some may say. We know for sure bitcoin miners across the globe felt the pain of seeing that.

The irony of it all is that crypto mining is not illegal in Malaysia. But the act of stealing electricity is. Those miners were purposely confiscated from miners that stole about $2 million worth of electricity from the official state grid company, Sarawak Energy. The confiscation was a joint raid amongst miners in the local city of Miri.

A total of over $1 million worth of ASICs were destroyed as the government didn’t want to sell them off on the second-hand market. Rather their moves made a loud statement that stolen electricity won’t be tolerated.

Eight have been arrested in connection with the mining operation in Miri, and six people have been charged under Section 379 in the Penal Code for stealing energy supplies, according to Hawari. Those charged will be jailed for eight months and face a fine of up to $1,900 per person.

The Cambridge Center for Alternative Finance estimates that Malaysia accounts for 3.44% of all the world’s bitcoin miners, placing it in the top ten mining destinations on the planet. (1)

The Cambridge Center for Alternative Finance estimates that Malaysia accounts for 3.44% of all the world’s bitcoin miners, placing it in the top ten mining destinations on the planet. (1)

Malaysia has unique geography where it is separated into two different unconnected parts, with both having their borders surrounded by water, specifically the South China Sea. Both parts share a largely similar landscape in that both Peninsular and East Malaysia feature coastal plains rising to hills and mountains. Peninsular Malaysia, which is the part of Malaysia with the highest population and includes cities such as Kuala Lumpur, contains a series of mountain ranges part of the Titiwangsa Mountains.

The mountain ranges are the origins of some of the country’s large river systems. East Malaysia, on the island of Borneo, has a coastline of 2,607 km and is divided between coastal regions, hills and valleys, and a mountainous interior.

“Malaysia has relatively abundant hydropower resources, albeit unevenly distributed among the different parts of the country, with heavier concentrations in Sabah and Sarawak. The first major hydropower dam, the Chenderoh Dam (27MW), was constructed in 1930. In the decades that followed, systematic development of the country’s natural resources has contributed over 27,300GWh of energy annually from an overall installed capacity of 6240MW. This represents about 17% of the total generation capacity (34,200MW) in the country, including gas, solar, coal and other power sources.

Malaysia has a total landmass of about 330,000km2 with a mean elevation of about 300m. The average rainfall is slightly more than 2600mm per year. In the mid-1970s an inventory survey of hydropower resources of the country was conducted and has since been used as indicative information of available hydropower resources within the country. Overall, the total gross hydropower potential documented is about 414,000GWh per year of which about 123,000GWh per year is the technical potential for development. About 87,000 GWh (70%) of this energy potential is located in Sarawak, 20,000 GWh in Sabah and 16,000 GWh in Peninsular Malaysia.

The development of major hydropower projects in Malaysia is generally undertaken by the utility companies such as Tenaga Nasional Berhad (TNB) in Peninsular Malaysia, Sarawak Energy Berhad (SEB) in Sarawak while in Sabah by the Sabah Electricity Sdn Bhd (SESB). There have been attempts by private players to participate in the development of major hydropower in Malaysia but with very little success to date. The development of smaller hydropower projects below 30MW is open to private parties and incentivized by the Feed-in Tariff (FiT) mechanism managed by the Government.” (3)

In October, Malaysian mall operator and developer, Hatten Land, announced their intent in working with Singapore Myanmar Investco in exploring business opportunities in cryptocurrency mining.

It should be a strange headline to see a mall developer come out and announce its plans to get into crypto. The past year has seen a swarm of non-related companies announce their interest in crypto and bitcoin. A couple of weeks after the SMI announcement, Hatten Land started working with Frontier Digital Asset Management in installing at least 1,000 crypto mining machines at properties owned or managed by Hatten Land in the Malaysian state of Malacca. The rigs will mine Bitcoin initially, with alternative coins to be considered in the future, it said.

“The Hatten Group has sufficient capacity to host the new green crypto mining operations in our malls without eliminating the retail aspect,” Executive Chairman and Managing Director Colin Tan said in an email Thursday. The “operations will improve the utilization and in turn enhance the profitability of our malls.”

Historically China has been the crowned leader for bitcoin mining in Asia, but ever since the harsh crackdown of bitcoin mining in China this year, Malaysia might be able to take that leadership crown within the Asian countries. Malaysia also has a vast crypto scene with some notable projects being from there such as CoinGecko.

And Malaysia is geographically situated in an advantageous location. With China in the north and Singapore on its southern border, mining financing is abundant with investors looking for yield in profitable locations such as Malaysia. Historically, Malaysia has always been a hotbed for investments due to its developing-developed country characteristics. It’s a mature country with strong regulations but also a vastly expanding country as well.

Compared to other countries and excluding China, Malaysia seems very well situated to be the mining leader in Asia.

What is Merge Mining?

The low-key tech of crypto, people outside of crypto don’t know about.

For those who have been in the mining business for a while, there are more than just specialized computers generating random numbers through SHA256 to win a lottery. If you would like a primer and refresher on what SHA256 is, please check out our previous blog on this topic here. A spawn of different types of mining methods and technologies have been born to accommodate miners that are seeking more…money! The more you mine, the more you increase your chances of block rewards. It’s simple.

The advent of different bitcoin forks has been a big factor as to why we have numerous mining technologies such as FIBRE, BetterHash, Stratum, Mining Derivatives, Hash Rate contracts, Cloud Mining, and much more. But it’s the growth of bitcoin merge mining that will be the focus of this blog topic.

In its simplest meaning, merge mining allows a miner to use their hashrates in mining multiple currencies that utilize the same mining algorithm. Merge mining, which is also called auxiliary proof of work, essentially allows a miner to have a chance in earning block rewards from separate networks. Merge mining requires having a primary coin and a secondary coin. The primary coin is the main network you are hashing on with the secondary coin being the additional network you are attempting to mine.

In the normal single coin mining, a miner is submitting a hash of a block header which is less than the public difficulty target number. This process is repeated over and over again until a miner finds a winning hash. In the context of merge mining, the primary coin’s block header hash includes a transaction, which contains a hash of the merged mined secondary coin’s block header.

Most mining pools support merged mining allowing smaller miners to merge mine, without them even knowing. The pool will just automatically include the secondary coin’s block header.

Into detail of how it all works

It all starts with a miner choosing a primary chain and a secondary chain. Let’s say if the miner chooses bitcoin as the primary chain and Litecoin as the secondary chain. The miner will then first start assembling blocks for both sets of chains, bitcoin and Litecoin. When the miner finished assembling a Litecoin block, the miner will hash the block and insert this particular hash into the assembled bitcoin block as a transaction. This transaction containing the Litecoin block hash is valid in the bitcoin block and doesn’t affect anything.

If the miner solves a bitcoin block correctly, they will get the reward from the block’s coinbase award and be able to finalize that block. The Litecoin hash and block will just be ignored. But if the hash also is an eligible hash for the Litecoin difficulty target, then the miner will also be awarded that Litecoin’s block. The miner will then need to include that bitcoin’s block header in Litecoin’s block header. Including the bitcoin’s block header, which includes the winning hash of the Litecoin block, is proof that work was done to submit a winning hash.

The amazing thing about this whole process is that Bitcoin nor Litecoin are affected. Maybe those blocks have a bit more data inserted into them, but besides that, both chains are running normally without the primary chain knowing about anything.

Merge mining itself has evolved over the past few years to take advantage of nuances and profit maximization opportunities. There are also slightly nuanced variations of merge mining. For example, there are regular merge mining and blind merge mining. Regular merge mining is conducted by Bitcoin miners, while blind merge mining can normally be conducted by anyone, who then pays Bitcoin miners in fees.

Other variations include Scrypt merge mining and blind merged mining with covenants.

In terms of economic incentives, miners will be incentivized to mine all blocks that are eligible for merge mining processes. In some way, these chains receive more miners and more hashrate competition, essentially helping network activity. Although some may market themselves as more secure because of the increase in hashrates, this is up to debate.

The mining space is complex and advanced as miners have developed more complex ways to efficiently mine coins. We hope this piece on merge mining is an educational piece for you to learn about different emerging technologies in the mining space.

Bi-Weekly Miner Updates

Things are getting a bit more difficult.

After a month where transaction fees vehemently shot up to a near $60 per transaction, transaction fee levels have cooled back down as difficulty has also taken a concomitant drop to around 20 T. Needless to say but this cooldown period, or whatever way you want to call it, has been a great way to finally send out those transactions you were waiting to send or to finally see those stuck mempool transactions finally see it’s first confirmation on the network.

In recent miner news, a North American mining company called Marathon Digital Holdings claims that it has successfully mined its first “clean” block. The word “clean” here has many connotations and can in fact me conflated with “zero privacy”. But essentially what they refer to “clean” is a block that is fully compliant U.S. regulations, including anti-money laundering (AML) and Office of Foreign Assets Control (OFAC’s) standards. This means that they can reject certain transactions that are deemed “dirty” in the eyes of these regulators. Amongst many in the bitcoin community, this practice has been called out as being not only “dirty” as well, but just plain disgusting. For an entity, especially a mining entity, to reject and censor certain transactions from being mined into a block is unequivocally against the truism of bitcoin. Many bitcoin analyst and diehard bitcoiners have even suggested nodes to just reject this mined block of Marathon as a way to refuse its acceptance into the network.

To continue on the topic of more attacks on the mining community, we regretfully came across the announcement by the government of New York State with the intention of placing a temporary prohibition on crypto mining until they have weighed its costs and benefits to the environment. This goes back to the whole environmental debate of bitcoin and merits the question again as to who has moral authority to choose what energy should be used for.

By the time this piece is published, we all have been victims of Elon’s bearish bitcoin tweet which sent the price of bitcoin down over 10%. See below to see what he said that made even the more diehard bitcoin energy defenders fume into rage.

The natural argument is that mining naturally chases the most efficient and cleanest energy. Considering how much miners are making per transaction (see below), it would be normal for one to think this.

At the moment, miners are earning over $200 USD per transaction mined and that should be expected to increase if price continues upward. Eventually the environmental debate will fade away as people realize how much other activities in the world use in energy, i.e., fiat printing.

Nic Carter, who has been one of the biggest defenders of Bitcoin’s energy uses, suggests people to DO YOUR HOMEWORK before claiming Bitcoin uses too much energy! Below are the topics he suggests one needs to be educated on:

– carbon intensity / energy mix

– transmission loss

– Proof of Work

– curtailed/stranded energy

– settlement assurances

– deferred settlement

– energy vs electricity production

– payments v settlement

But for those in the space, we all know these critics and media attacks on Bitcoin come every year, if not every month. And what have we learned from it all, Bitcoin keeps getting stronger and stronger. As much as Elon was loved just a few months ago, the bitcoin community now hates him. It’s a love hate relationship. But the lesson learned, don’t attack Bitcoin.