A few known Bitcoin mining farms, Excellent Wall of Numbers
Business Opportunities and Challenges ter Emerging Markets
[Note: the following overview on known Bitcoin mining farms wasgoed originally included ter a fresh paper but needed to be eliminated for space and flow considerations]
Several validators on the Bitcoin network, spil well spil many watermarked token issuers, are identifiable and known. 1 What does this mean? Many Bitcoin validators are drifting usage outside the pseudonymous setting of the original network due to their use of specialty equipment that creates a paper trail. Ter other words, pseudonymity has given way to real world identity. Soon issuers of color will likely go after because they too have strong ties to the physical, off-chain world.
For example, on August Four, 2015, block 368396 wasgoed mined by P2Pool. This is notable for two reasons.
The very first is that the block included a transaction sent from Symbiont.io, a NYC-based startup building “middleware” that enables organizations and financial institutions to create and use ‘smart securities’ off-chain inbetween numerous parties and have the resulting transaction hashed onto a blockchain, ter this case, the Bitcoin blockchain. Two
Several weeks zometeen, Symbiont announced that it would start using their “stack” to provide similar functionality on a permissioned ledger. Three This goes after a similar budge by T0.com – a wholly wielded subsidiary of Overstock.com – which primarily used Open Assets to punt a $Five million “cryptobond” onto the Bitcoin blockchain, but have subsequently switched to using a “blockchain-inspired” system designed by Peernova. Four Five 6
The 2nd reason this wasgoed notable is that the block above, 368396, included at least one transaction from Symbiont which wasgoed mined by a petite pool called P2Pool. 7 Unlike other pools discussed te this paper, P2Pool is not continually operated ter a specific region or city.
It is decentralized ter that all participants (hashers) vereiste run their own utter Bitcoin knots which stand te tegenstelling with pools such spil F2Pool, KnC mining pool and BTCC (formerly called BTC China), where the pool technicus alone runs the validating knot and the labor force (hashers) simply search for a mid-state that fulfills the target difficulty. 8
Due to this resource intensive requirement (running a total knot requires more bandwidth and disk space than merely hashing itself), P2Pool is infrequently used and consequently comprises less than 1% of the current network hashrate.
P2Pool’s users are effectively pseudonymous. Due to the intended pseudonymity it is also unclear where the transaction fees and proceeds of hashing go. For example, do the hashers comprising this pool benefit from the proceeds of illicit trade or reside ter sanctioned countries or who to voeling ter the event there is a problem? And unlike te other pools, there is no customer service to call and find out.
Bitcoin’s – and P2Pool’s – lack of terms of service wasgoed intentionally done by vormgeving (i.e., caveat emptor). And te the event of a block reversal, censored transaction or a mere mistake by end-users, spil noted above there is no contract, standard operating proces or EULA that mining pools (validators) voorwaarde adhere to. This is discussed ter section Three.
This pseudonymous regeling wasgoed the default method of mining te 2009 but has evolved overheen the years. For example, there are at least two known incidents ter which a miner wasgoed contacted and returned fees upon request.
Launched te late summer of 2012 and during the era of transition from GPUs and FPGA mining, ASICMiner wasgoed one of the very first publicly known companies to create its own independent ASIC mining hardware. Its team wasgoed led by “FriedCat,” a Chinese businessman, who custom-built designed and integrated ASIC chips called Block Eruptors, ASICMiner operated their own liquid immersion facility ter Hong Kong. 9
At its height, ASICMiner (which solo-mined similar to KnC and BitFury do today) reached overheen 10% of the network hashrate and its “shareholders” listed its stock on GLBSE (Global Bitcoin Stock Exchange), GLBSE is a now defunct virtual “stock market” that enabled bitcoin users to purchase, trade and acquire “shares” ter a multitude of listed companies. Ten GLBSE is notable for having listed, among other projects, SatoshiDice which wasgoed zometeen charged by the Securities and Exchange Commission (SEC) for suggesting unregistered securities to the public. 11 12
While unregistered stock exchanges catering to cryptocurrency users and China-based mining pools may be common glances today, on August 28, 2013, a bitcoin user sent a 200 bitcoin toverfee that wasgoed processed by ASICMiner. 13 Based on then-market rates, this wasgoed approximately worth $23,518. 14 The next day, for reasons that are unknown, ASICMiner allegedly sent the errant toverfee back to the original user. 15 At the time, one theory proposed by Greg Maxwell (a Bitcoin Core developer) wasgoed that this toverfee wasgoed accidentally sent due to a bug with CoinJoin, a coin-mixing service. 16
Liquid cooled hashing equipment at ASICMiner ter 2013. Source: Xiaogang Cao
The 2nd notable incident involved BitGo, a multisig-as-a-service startup based te Palo Alto and AntPool, a large China-based pool (which presently represents about 15% of the network hashrate) operated by Bitmain which also manufacturers Antminer hardware that can be acquired directly from the company (te tegenstelling to many manufacturers which no longer sell to the public-at-large). On April 25, 2015 a BitGo user, due to a software glitch, accidentally sent 85 bitcoins spil a mining toverfee to AntPool. Based on then-market rates, this wasgoed worth approximately $Nineteen,197. 17
The glitch occurred ter BitGo’s legacy recovery contraption which used an older version of a library that causes a 32-bit truncation of values and results te a truncation of outputs on the recovery transaction. Legitimate To resolve this problem, the user “rtsn” spent several days publicly conversing with tech support (and the community) on Reddit. Nineteen
Eventually the glitch wasgoed immobilized and Bitmain – to be viewed spil a “good member of the community” yet defeating the purpose of a one-way-only, pseudonymous blockchain – sent the user back 85 bitcoins.
Toverfee to Bitmain (Antpool) highlighted te crimson on Total Transaction Toverfee chart. Source: Blockchain.informatie
On September 11, 2015 another user accidentally sent Four.6 bitcoins (worth $1,113) spil a toverfee to a mining pool, which te this example wasgoed AntPool. 20 Bitmain, the parent company, once again returned the toverfee to the user.
Do wij know about other farms? 21
HaoBTC is a freshly constructed medium-sized hashing farm located ter Kangding, western Sichuan, near the Eastern border with Tibet. 22 It presently costs around 1.Five million RMB vanaf petahash (PH) – or $242,000 – to operate vanaf year. This includes the infrastructure and miner equipment costs. It does not include the operating costs which consists of: electro-stimulation, labor, rent and taxes (the latter two are relatively negligible).
The facility itself cost inbetween $600,000 – $700,000 to build (slightly less than the $1 million facility BitFury built ter 2014 ter the Republic of Georgia) and its electrical rate of 0.Two RMB vanaf kWh comes from a nearby hydroelectric dijk which has a 25,000 kW output (and cost around $Ten million to construct). 23
Te dollar terms this is omschrijving to around $0.03 / kWh (during the “wet” or “summer” season). For perspective, their electrified bill te August 2015 came te at 1.Four million RMB (toughly $219,000), thus electric current is by far the largest operating cost component.
When all the other costs are accounted for, the average rises to approximately $0.045 vanaf kWh. The tens unit rate is slightly more expensive (0.Four RMB or $0.06) during winter due to less water from the mountains. The summer rate is harshly the same price spil the Washington State-based hashing facilities which is the cheapest ter the US (note: it bears mentioning that Washington State partly subsidizes hydroelectricity).
HaoBTC staff installing hashing equipment. Source: Eric Mu
At this price vanaf joule it would cost around $105 million to reproduce “work” generated by the 450 petahash Bitcoin blockchain. Due to a latest purchase of second-hand ASICMiner Tubes, HaoBTC presently generates just overheen Ten PH and they are looking to expand to 12 PH by the end of the year. 24 The key figure that most miners are interested te is that at the current difficulty level it costs around $161 for HaoBTC’s farm to create a bitcoin, providing them a almost 100% margin relative to the current market price.
The ASIC machines they – and the surplus of the industry uses – are single use, this hashing equipment cannot run Excel or Google services, or even bitcoind. Thus common comparisons with university supercomputers is not an apples-to-apples comparison spil ASIC hashing cannot do general purpose computing, ASIC hashing equipment can perform just one function. 25
There is also a second-hand market for it. For example, hashing facilities such spil HaoBTC actively look to capitalize off their unique geographical advantages by using older, used hardware. And there is a niche group of individuals, wanting to remain anonymous, that will also purchase older equipment. 26
Albeit individual buyers of fresh hashing equipment such spil Bob, do typically have to identify themselves to some level, both Bob can also resell the hardware on the second-hand market without any documentation. Thus, some buyers wanting to buy hashing equipment anonymously can do so for a relative premium and typically through middlemen. 27 28
While Bitbank’s BW mining farm and pool have bot te the news recently 29 , perhaps the most well-known live visual of mining facilities is the Motherboard story on a large Bitcoin mining farm ter Dalian, Liaoning: 30
Incidentally, while Motherboard actually looked at just one farm, the foreigner helping to translate for the speelfilm team independently visited another farm ter Internal Mongolia which during the past year Bitbank evidently acquired. 31
Are there any other known facilities outside of China? 32
Genesis Mining is a cloudhashing service provider that purportedly has several facilities te Iceland. 33 According to a latest news story the company is one of the largest users of energy on the island and overlooking all the other costs of production (aside from tens unit), it costs about $60 to produce a bitcoin. 34 However, when other costs are included (such spil hardware and staffing) the margin declines to – according to the company – about 20% relative to the current bitcoin price. At the time of the story, the market price of a bitcoin wasgoed around $231.
The four illustrations above are among a duo dozen farms that generate the majority of the remaining hashrate.
What does this have to do with colored coins?
The network wasgoed originally designed ter such a way that validators (block makers) were pseudonymous and identification by outside participants wasgoed unintended and difficult to do. If users can now voeling validators, known actors te scenic Sichuan, frigid Iceland or rustic Georgia, why not just use a distributed ledger system that already identifies validators from the get go? What use is proof-of-work at all? Why bother with the rhetoric and marginal costs of pseudonymity?
The social pressure type of altruism noted above (e.g,. Bitmain and BitGo returning fees) actually could set a nebulous precedent: once block prizes are diminished and fees start to represent a larger percentage of miner revenue, it will no longer be an “easy” decision to refund the user ter the event there is a mistake. 35 If Bitmain did not send a refund, this backup wallet error would serve spil a powerful warning to future users to attempt and not make mistakes.
While there have bot proposals to re-decentralize the hashing process, such spil a consumer-device effort led by 21inc which amounts to creating a large corporate operated botnet, one trend that has remained onveranderlijk is the continued centralization of mining (block making) itself. 36 37 The motivation for centralizing block making has and resumes to be about one factor: variance ter payouts. 38 Investors ter hashing choose stable payouts overheen less stable payouts and the best way to do that with the current Poisson process is to pool capital (much like pooling capital ter capital markets to reduce risk).
Whether or not thesis trends stay the same ter the future are unknown, however it is likely that the capability to voeling (or not voeling) certain pools and farms will be an area of continued research.
Similarly one other potential drawback of piggy backing on top of a public blockchain that could be modeled te the future is the introduction of a fat tail risk due to the boundlessness of the price of the native token. 39 Te the case of price spikes even if for brief time can create price distortions or liquidity problem on the off-chain asset introducing a correlation inbetween the token and the asset that theoretically wasgoed not supposed to be there.