Mining: Then, Now, and in the Future (PDF)

Mining: Then, Now, and in the Future presented by Philip Salter CTO @ Genesis Digital Assets 1  Philip Salter I always loved programming and always will Studied Game...

Mining: Then, Now, and in the Future presented by Philip Salter CTO @ Genesis Digital Assets 1  Philip Salter I always loved programming and always will Studied Game Engine Design @ TUM Passionate about Bitcoin since 2011 Building and operating mining farms since 2014 Currently CTO at Genesis Digital Assets, one of the largest mining companies (~ 500 MW operational) Twitter: @Philon_ LinkedIn: https://www.linkedin.com/in/philip-salter1/ 2 What is mining? 3  “Bitcoin: A Peer-to-Peer Electronic Cash System” Let’s trace Satoshis steps that led him to invent Mining. Allow generation of addresses → Public-key cryptography (1970s) Keep an account balance per identity → Databases (1960s) Connect everyone on a P2P network → Usenet allowed this in 1979 Allow transactions from one address to another → Cryptographically signed messages (1970s) So, everything seems fine, right? Each node should listen for new transactions, verify that the sender has enough account balance to send the transaction, and if he does, update our database accordingly. Problem: Since information takes time to propagate through the P2P network, each node receives transactions in a different order, so there will be disagreement about account balances at any given point in time. We need to ensure that everyone agrees on the ordering of transactions. 4  Building the Blockchain To preserve ordering, nodes group transactions into “blocks” which connect one-by-one into a chain: the Blockchain. Every node continuously builds such blocks, with slight differences between them. Which one should be added to the blockchain and become part of history? Nodes try to mine their block. Mining means trying to find a cryptographic hash in a very specific format. If found, the Block block is considered “mined” and all other #102? nodes add this block to their copy of the blockchain. Block Block #100 #101 The node that mined the block is rewarded with freshly minted Bitcoin, which Block compensates it for the power it has #102? expended to find the hash. It also receives the transaction fees of all transactions within that block. 5  Difficulty Adjustments If the nodes produce more computing power (“hashrate”), then blocks are found more frequently. But Bitcoin targets one block every 10 minutes. So, every 2016 blocks nodes adjust the mining difficulty up or down accordingly. That’s once every two weeks. Rising difficulty means that the amount of hashrate mining Bitcoin is increasing - caused by new farms turning on, or old farms being upgraded with more efficient miners. Fun fact: Since hashrate generally rises, and difficulty is adjusted only retroactively, block times are slightly less than 10 minutes on average. 6  Mining Pools One S21 miner hashes at 200TH/s, which is about 1/3.000.000th (0.000033%) of all Bitcoin hashrate. It will find one block every ~57 years (+/- a decade or two, based on luck).. ➔ Mining pools allow miners to “pool” hashrate together so they find blocks more consistently ➔ When a pool finds a block, it will distribute the rewards between pool participants based on contributions Pros Cons Miners get consistent rewards Pools must be trusted with the fair distribution of coins. Miners don’t need to run a node Miners can’t choose which transactions they are mining (centralization risk!) Marek Palatinus (@slush) 7 The Evolution of Mining Technology 18 2011 — the spirit of mining 19 Home Mining - “optimizing for WAF” 20 Garage Mining - “just point a fan at it” 21 Hangars - “sick pressure drop, bro” 22 Custom Buildings - “but what if it rains?” 23 Single-Phase Immersion Cooling 24 Evolution of Mining Hardware CPU 10.000.000 J/TH GPU 500.000 J/TH ASIC 110nm 1.000 J/TH 25  ASIC 110nm 1.000 J/TH ASIC 28nm 260 J/TH ASIC 16nm 100 J/TH ASIC 10nm 55 J/TH ASIC 7nm 30 J/TH ASIC 5nm 21 J/TH ASIC 3nm 16 J/TH ASIC 2nm 11 J/TH? Antminer S17 55J/TH Antminer S19 30J/TH Antminer S19XP 21J/TH 2020 2021 2022 2023 26 Bitcoin’s Power Usage 29  Bitcoins power usage ➔ Power is total hashrate (630 EH) * average miner efficiency (32 MW/EH) = 20.2 GW (176 GWh/y) 30  renewables + miners = happy grid operators Miners are large and predictable loads and willing to turn off at any time in case of a supply shortage. Fun Fact: Renewables are With wind and solar causing increasingly large swings in power cheaper than fossil fuels! generation, miners act as “negative batteries”, which only use power when there is enough generation. → Grid operators can sell more green power, which reduces their breakeven time → Miners get power at a discount for this service, incentivising expansion into areas with more renewables 31  CO2 Emissions Current CO2 emission intensity of BTC mining is about 260 grams per kWh ➔ Worldwide average is 430 Mt of CO2 per year ➔ Germany is 370 ➔.. Sweden is 45 Sweden 38 BTC 46 Tumble Dryers 53 Banking System 130 Germany 776 Air Conditioning 984 Aviation Industry 1982 32  CO2 impact of a modern BTC payment Bitcoin processes ~7 transactions per second (tx/s) on the blockchain and each tx takes on ~5 minutes to confirm. It obviously doesn’t scale to billions of users worldwide. Solution: The Lightning Network BTC tx/s CO2 equivalent per tx ➔ Open payment channels with others that allow instant, free, and anonymous 5 1h commercial flight transactions 19 1 day of cow methane emission ➔ Channels between different people link up into a network that can route payments just 36 1 McDonalds cheeseburger like the internet routes data packets 72 10min hot shower ➔ Scalable system that allows almost unlimited 1202 1 cup of coffee about of tx/s, but we can’t measure how many tx are actually being sent 320.000 1 VISA tx (they handle 7.7k tx/s) ➔ Mining consumes the same amount of power Lightning is estimated to handle up to 1.000.000 tx/s no matter how many tx are processed via lightning. 33 Decentralization 37  Mining vs Node Distribution Too much hashrate in one country is risky, since a change of policy in that country can have a big Bitcoin node influence to Bitcoin. Case study: China banned all mining in 2021 and about a 3rd of all hashrate Mining hotspot went offline overnight. 38 Miner Manufacturers Current ~80% Bitmain ~10% MicroBt ~10% Canaan Newcomers Auradine Block Chain Reaction Zetagig Centralization of mining hardware means that a single mishap (or state sponsored attack) could cause serious harm to the Bitcoin network. 39  Decentralizing Mining Pools The current pool market has some risks: Recent analysis suggests that some pools may be backed by the same entity financially, putting their independence into question. In case pools are deemed money transmitters the US, that would lead to KYC requirements and AML regulations - in effect stripping miners of anonymity and maybe even requiring them to censor transactions. ➔ Stratum V2 is a new mining protocol that allows miners to build their own block templates - drastically reducing the power that a pool has to censor transactions or engage in non-free behavior. https://stratumprotocol.org/ 40.. and the Future! Hashrate futures markets PayPal green mining Sell hashrate futures to hedge risks Certify mining operations as “green” Speculate on future mining profitability Attach outputs to tx which are only Un-link miners from pools spendable by “green miners” → https://www.nicehash.com/marketplace These tx will only be mined in an → https://titan.io/ extremely low-fee scenario, or by green miners PayPal can claim they use BTC without causing CO2 emissions → link Using miners exhaust heat Grow plants in the cold https://genesisdigitalassets.com/green house-project/ Connect to district heating systems Residential: Hot tubs, pools, floor heating (but only in countries that heat with electricity) 41 Thank you! 42