Crypto News
Are Mining Pools Becoming A Problem?
Bitcoin miners provide a valuable service to the ecosystem. In exchange for the work they do securing the network, they are rewarded by the same network they protect. This sound and elegant design by Satoshi is surely one of the most remarkable aspects of Bitcoin.
What is increasingly being forgotten, however, is that there is more to mining than merely hashing.
A person engaging in the entire process must run a node to get reliably updated on the most recent state of the blockchain, then begin construction of a new block. This involves verifying the validity of the previous block, discovering unconfirmed transactions and usually selecting the most lucrative of them, constructing a generation transaction in which they pay themselves, building multiple merkle trees of these transactions, and finally hashing to actually solve this block. The transactions within the block template will constantly change as new ones get broadcasted to the network and when a new block is found by someone else, the miner must switch to building on top of that along with dumping all the transactions now already in the blockchain to populate a new template.
Fork Activations
As you can see, hashing to actually solve the block is just one part of this process. A Bitcoin mining ASIC is also only capable of hashing. In the current environment, all other aspects of mining are generally delegated to mining pools. This has spawned some confusion. For example, in any circumstance where there is a discussion about activation of soft forks via version bit flipping within block templates, people will refer to this process being a MASF – “Miner Activated Soft Fork” – and someone will always have to clarify that this responsibility falls solely to pools and that pools are not miners. They may also point out that miners are still ultimately in charge as if they desire the upgrade and the pool they are mining with doesn’t, they can simply switch pools. [For clarity, in the rest of this article I will refer to those only participating in hashing and leaving all other aspects of mining to pools as “hashers”.]
Back to soft forks – in the current environment where >99% of blocks are constructed by the same dozen entities, it becomes more accurate to call these “Pool Activated Soft Forks” which no one does, contributing to a dangerous illusion: that mining can be considered decentralized merely due to distribution of hashrate. This claim is simply not credible when all the hashrate is beholden to a tiny group of pools and thus the contents of Bitcoin’s blockchain going forward ultimately will not include anything these few entities consider unacceptable, as well as a whole host of other issues.
By not engaging in any other aspect of mining beyond hashing blocks constructed by pools, Bitcoin miners have largely abdicated a critical component of their role. The fact that this is not only possible but also the path of least resistance indicates that we have a systemic issue.
Pools And Blockspace Markets
The implications of merely hashing and having a pool do everything else stretch far beyond soft fork activation. For example, miners presently are entirely unaware of what blocks will look like once solved, meaning that a miner performs work while blindly trusting that the block contains only desirable transactions. But you have a blatant violation of that trust in blocks such as this one – this is the famous block that kicked off the “ordinals” craze. Notice how the transaction fees the miners who worked on this block would actually enjoy amount to a measly ~$200 in BTC, in contrast to the blocks either side of it both averaging ~$5,000 in BTC.
Block space is valuable – that’s part of what makes Bitcoin work in the long term – but in a world where just a handful of players can have a template they construct end up in the blockchain, those same entities have near-exclusivity to sell this space and be paid out of band in exchange for it. Are they obligated – or even likely – to be forthright with their miners that they are doing this? Certainly not in this case as the intention was to surprise everyone. Going forward will they forward on to their hashers payments they receive for selling blockspace out of band?
Simply put, while the incentives for a pool and its hashers typically align with regard to maximizing profit, a pool has the option of selling blockspace for things other than regular Bitcoin transactions, while a miner’s income is more limited unless the pool chooses to be transparent and agrees to share revenue. Even if they do, verification requires the pool’s permission as opposed to verifying money earnt from subsidy and transaction fees (also tricky with FPPS pools, more on that later).
Further implications of pools being Bitcoin’s centralized constructors of block templates stem from the fact that – on a more fundamental level, there are twelve “super nodes” with their own “super mempools”.
This cascades into people dealing directly with pools and ignoring mempools altogether. Some contend that the mempool is doomed regardless – and that the current state of centralized template construction is merely accelerating this, but it’s certainly not desirable in any case and it would be overly pessimistic to make this assumption in a world where genuinely decentralized template construction is somehow made realistic. Then out-of-band payments must make their way to a larger group of people if whoever is purchasing the block space wishes to make it into the chain in the same time frame. This would likely be more transparent and reminiscent of the way things currently work. Conversely, “super nodes” would hopefully be broken up into smaller pieces and thus no longer be able to offer the same guarantees.
To deviate from this aspect of mining let’s shift focus to how payouts are currently handled.
Pool Payout Models
Nearly all pools pay their hashers via FPPS (Full Pay Per Share) or something similar. One exception is ViaBTC offers PPLNS (Pay Per Last N Shares) in addition to FPPS. Antpool also offers PPLNS but hashers must forfeit all transaction fee revenue – this speaks to the point that I will soon endeavor to make – essentially that FPPS is not a model that works well in a world where transaction fee revenue is what is of relevance rather than subsidy. It should be mentioned that Braiins pool (formerly Slushpool) uses a system referred to as “score” which in practice is quite similar to PPLNS.
What is the reason for this overwhelming preference for FPPS? From the hasher’s perspective, they get paid no matter what happens on the blockchain. This is congruent with the purpose of pooled mining – greater consistency of income. FPPS offers more consistent payouts because the pool pays based on projected revenue and settles-up with the blockchain independently.
This makes life extremely easy for miners who want to minimize issues resulting from cash flow disruption, but there are of course drawbacks – major ones that I hope to highlight here.
FPPS first and foremost requires that the pool become the custodian of all freshly mined bitcoins. These cannot be forwarded on to miners for a minimum of 100 blocks as freshly mined bitcoins are unspendable until after this and in practice, the mined coins can have nothing to do with what the miners are ultimately receiving when making withdrawals from the pool. The risks of third party custody should be obvious to almost everyone reading this article so I’ll skip it and move on to other issues with FPPS.
The next concern comes from the fact that more generally, an FPPS pool is a significant intermediary between hashers and the network itself. We have already established that hashers aren’t privy to what the blocks they are working on will ultimately look like until after they are solved. FPPS means that they are now also unconcerned with whether blocks are even found or not, it’s the pool’s problem. Ignoring the increased predictability of payouts (should a pool never decide to rug its hashers) we must acknowledge the tradeoffs of doing this.
Miners getting paid directly by Bitcoin itself – possible in alternative schemes like PPLNS or of course solo mining – can expect to be fully rewarded for their contributions including transaction fees. An FPPS pool can only do this as a post-hoc calculation because there is simply no way to predict what fees will amount to when establishing what hashers actually receive per share. A pool cannot simply assume that fees will be some value greater than 0 and credit miners with this as they mine because should fees drop below this value, they would simply be paying the miners out of their own pocket. They must periodically divide up fees and attribute them to miners once actually in the pool’s custody.
From the hasher’s perspective, complete trust in the pool is required since verification is next to impossible without the pool’s full transparency and cooperation. Previously, as alluded to above, this was less of an issue since most mining revenue came from subsidy with only a sprinkling of sats in transaction fees – but this increasingly isn’t (and indeed cannot be) the future of Bitcoin mining. Going forward, miners will earn primarily from transaction fees and those are simply harder to predict and monitor when using a pool than the subsidy.
Contrasted with a payout scheme like PPLNS where hashers accept increased variability (the pool’s luck becomes the hasher’s luck too), we see that the mining ecosystem has overwhelmingly elected to prioritize consistency of payouts over the ability to verify what is received. More perversely, some hashers actually prefer this — wishing to present themselves to governmental authorities as a kind of “hashing service” entirely disconnected from Bitcoin–some proudly so. This is because FPPS is such a radical deviation from the ideal miner/pool dynamic that it’s once again hard to describe what the hasher is even doing as “bitcoin mining”.
In effect, the FPPS pool is a large solo miner paying hashers to solve its blocks. After which they have an internal and opaque process by which they figure out what to pay their hashers. To really illustrate the point the hasher could (and in some not-so-hard to imagine scenarios would) even be paid its fees in something other than Bitcoin.
Why not? If you don’t care if any blocks get found let alone what they look like before construction, why not just get paid fiat by a solo miner to point your ASICs at them in whatever the most convenient currency is? Bitcoin is not always the most frictionless option, but even if it were, it’s reasonable to imagine continuing down a path where “hashing” may be performed by as many entities as you like, but all done on behalf of a tiny group of “pools” whose permission the entire network needs to get anything into the actual blockchain.
Who Is Hashing Anyway?
Let’s look at this in a wider context. We have already mentioned that some larger players wish to distance themselves from Bitcoin as far as possible, thus happily delegating as much Bitcoin related activity to their pool as possible. The pools are wide open to regulation, and a large amount of their hashrate is only too happy about it.
This again introduces economic irrationality from the perspective of the network itself, manifesting in behavior such as the mining of blocks that meet certain arbitrary standards. When this occurred in the past, it didn’t last long due to backlash from the community, and the absurdity of trying to aggressively appease a jurisdiction’s shifting regulatory scheme without even being asked to do so. But the fact that that it was an option betrays the risk of having centralized construction of block templates. Will miners in one jurisdiction try to ban or refuse to process transactions stemming from another? Will miners simply be an extension of a government or influential bad actor? There are concrete examples of pools declining transaction fees to profiteer out of band, at times simply to comply with regulatory pressure. This once again appears economically irrational from the perspective of the network.
The most extreme recent example of this was the 19 BTC transaction fee paid in a transaction in a block ultimately found by F2Pool, ostensibly in error. As a FPPS pool, they became the custodian of the 19 BTC mining fee and chose to give it back to the person who made the mistake. This demonstrates perfectly the price of placing too large an intermediary between your miner and the Bitcoin network. In a PPLNS pool this would be less likely to have happened. Not because PPLNS pools are necessarily trustless or non-custodial, but by virtue of it being possible to monitor and verify fee revenue at the exact moment blocks come in, this would possibly have been harder for the pool to attempt having likely already credited miner’s accounts internally with their share of the mined funds causing greater backlash. Although nothing is in principle different until you contrast what would have happened should a pool make payouts to its miners in the coinbase/generation transaction itself. In that scenario the money would have already been in the miner’s custody and interception of fee revenue by the pool would have been impossible. So in this example a pool’s desire to seem generous or fair cost its miners $500,000 in fee revenue making a decision on behalf of them it should not have been in a position to make.
Next Issue: 51% And Other Attacks
This should be simple to explain: at this point everyone knows what a 51% attack is. What is far less understood though is that (up until the network routes around it,) 51% is the requirement for this style of attack to be a guaranteed and perpetual success rather than merely disruptive.
In reality, any entity that has more than 20% of the network can cause issues via a multitude of attacks, some being executed in the wild and only rarely discussed, which I will get into later. But before we do that, we can stare aghast at the network which has a pitiful two entities with a combined hashrate reliably greater than 51%. Worse yet, one of the largest pools not-so-carefully disguises that it is responsible for another 10% of blocks found through yet another large pool with whom the parent company maintains a strategic partnership. The fact that this pantomime persists does not inspire confidence.
There are two usual responses to this. Firstly, people point out that hashers can simply vote with their feet and switch pools if they ever combined forces to 51% attack. Secondly, that any pool would be insane to attempt it for the simple reason that disrupting bitcoin would cause the price to fall and no one invested in the ecosystem would ever want that. The second argument ignores human history and further assumes that people can never be coerced into behaving destructively and thus causing disruption simply for disruption’s sake or other nefarious purposes. (It also doesn’t take into account the fact that the market is often not necessarily a good indicator that there are issues with Bitcoin, see the forkwars of 2017.)
The first argument however makes a more solid assumption that hashers would always switch in a scenario where one pool does indeed get too large. Indeed, if pools tried to do this reality would kick in and we’d realize that despite constructing 99% of our block templates, pools aren’t actually miners. We also have a case study of Ghash.io which famously death-spiraled having spooked everyone by exceeding 40%.
Great, so we’ve demonstrated that this isn’t really an issue, hashers can be relied upon to just hop to another pool. (In reality, if large mining operations are all tied up in red tape it’s a far less reliable assumption but let’s at least proceed as though we’re fairly confident that this attack isn’t likely.)
Unfortunately, awareness of the fact that hash power will migrate away from any pool that exceeds a scary threshold leads to them self-regulating – but not in a way that helps because they do not need to genuinely maintain a hashrate below a threshold, they simply need to make it appear that way. This essentially amounts to accepting all the hash power they can get while forwarding it on to other pools as necessary to avoid alerting the world to their ability to wreak havoc.
So this leaves us with an unknowable picture of the network. 30% of blocks can be overtly found by the largest pool and be acceptable to everyone, while a further 10% of total network hashrate is still pointed at that pool and just secretly being directed to one or multiple smaller pools. The hashers responsible for that 10% are unlikely to realize it’s being used this way (and it gets even harder to detect with stratumV2 – more on this later).
This already less-than-ideal scenario gets far worse when you take into account the fact that this redirected hashrate can be used to harm smaller pools via the block withholding attack.
This is as follows – the attacker engages in the mining process mostly as a normal user of the victim pool. As a result, they get a share of the reward from any block the pool finds as expected. The rewards then ultimately end up with the attacker who can then pay the actual hasher without having to lose any money. So far the only harm caused is the incorrect impression of the pool’s hashrate as being smaller than it actually is but the smaller pool remains unharmed.
Now the harm occurs if they decide to not tell the victim pool when they find a block. This has the effect of making the victim pool appear unlucky. They appear to simply be finding fewer blocks than they should be and are paying out a reward split among more participants than are actually honestly mining – i.e necessarily running at a loss assuming they don’t make up the losses some other way.
If an FPPS pool is attacked this way, they must burn revenue paying miners out of pocket to make up for the difference. If they are PPLNS their miners wonder why they aren’t getting what they’re supposed to be getting. Either way, block withholding is anticompetitive and can destroy the victim pool by giving it a bad reputation.
From the attacking pool’s perspective, let’s say they make up 5% of the victim pool’s hashrate. This means they still make 95% of the revenue expected and the pool looks 5% less lucky than expected. This is easily enough to kill the pool whilst the 5% loss on the redirected hashrate will be of far less significance to the bigger pool. If it only represents 1% of the bigger pool’s total hash power then the attacker is only losing 5% of 1% of its expected rewards – 0.05%. This is a no brainer advantage to any malicious, significantly sized mining pool that is just prepared to act unethically.
The smaller the pool, the more vulnerable they are to this attack. The larger the pool, the more likely they are to block withhold a competing, smaller pool. This risk increases as large pools approach levels where their total hashrate begins to scare the community, which further motivates them to at least stash hashrate in smaller pools, even if they don’t actually attack with it or execute attacks infrequently enough for the problems to ultimately get dismissed as variance. Indeed – decreased variability is already enjoyed by larger pools due to more consistent payouts from the network which translates into being able to operate within tighter margins and thus be in a position to charge their hashers less. From the perspective of every miner/pool that isn’t under attack this attack means that they will enjoy lower difficulty as the Bitcoin network adjusts for there being fewer overall blocks.
Is block withholding merely theoretical? Absolutely not. Several mining pools were attacked in this exact way even as early as 2015. It is extremely difficult to thwart as a pool must monitor all workers and make a calculated decision to kick them off the pool and/or withhold payments to them should they be unlucky to a point of statistical impossibility and the pool able to reasonably assume they are acting maliciously. Attacks of this nature also incentivize pools to want to “know their hasher” and custody payments which of course makes life harder for those wishing to mine permissionlessly.
Regardless, the overall effect from all this is that people will prefer mining with larger pools for yet another reason.
We have publicly seen statements from large miners declaring that they are switching away from smaller pools due to getting payments that did not meet expectations.
This is extremely undesirable as larger pools and the larger hashers that use them are more easily encumbered with regulatory burden and thus prone to engaging in behavior that damages Bitcoin, going beyond even centralization of block templates and temporary custodianship of all block rewards.
The pools become effectively deputized, enforcing bureaucratic nonsense on “behalf of” their hashers. The two largest pools currently require that their users jump through a ton of hoops, including identity-exposing processes that should not and must not become necessary for someone to be able to mine bitcoin outside of solo mining.
To make one final point on block withholding beyond it threatening to make life harder for smaller pools and anyone wishing to hash with them, I say to anyone who might still be tempted to dismiss it as purely theoretical (even though its demonstrably happened in the past) – do we think it’s normal for pools to remain a consistent and apparently tolerable size organically? This would imply new hashrate coming online always somehow managing to distribute itself at least somewhat evenly. We must believe a pool can spring into existence, grow prodigiously and then just….stop….at right around the threshold needed before people get spooked. Do we see pools begging people to stop mining with them or straight up limiting account creation and kicking miners offline that exceed a permitted hashrate within existing accounts? We of course do not.
The two more probable scenarios are that either hashers are collectively self-regulating (unlikely, as mining with smaller pools now famously means earning less bitcoin even if the reasons I’ve presented in this article don’t entirely account for why – not to mention that examples of mass exodus from a pool were extremely noticeable the few times they have happened) – or – pools are simply misrepresenting the amount of hashrate they have pointed at them.
To add to all this, smaller pools have yet another issue: they can go days without finding blocks. A larger pool won’t go longer than a few hours. This is a question of resolution – the higher your hashrate, the closer you are to expectations over the short term, and this unfortunately results in a minimum threshold below which a pool cannot expect to make up for periods of bad luck at which point it just becomes impossible to compete.
The two-week periods between difficulty epochs means a reasonable number of blocks must be found within that two-week period so that any bad luck has a shot at being balanced out by subsequent good luck. If not, if – for example – the pool has a projected block rate of 1 block every 13 days and doesn’t find a block before the difficulty adjusts upwards causing them to drop to a projection of 1 in every 15 days, that prior window has closed forever. If it’s a PPLNS pool, the hashers have earnt less than they otherwise might have. If it’s an FPPS pool, the pool has burnt a lot of cash and/or become bankrupt.
This means there are only so many pools that can exist, at least ones that operate the way today’s pools operate. There simply cannot be hundreds, because many of them would keep collapsing in periods of bad luck due to having less than 1% of the network hashrate and therefore potentially not even being able to reliably find one block per day, encountering potential periods of weeks without blocks. This is a limitation placed on us by Bitcoin itself.
How Are Miners And Pools Communicating?
The protocol by which miners and pools communicate is Stratum (slowly but surely being superseded by StratumV2). StratumV1 is both ancient and deeply flawed. Firstly, all communication is done in plaintext. This means ISPs are not only privy to the fact that you’re mining but also the scale to which you are doing so, and they – along with anyone else that can snoop traffic on your network – can perform MITM attacks resulting in you using your machines and power on someone else’s behalf. This has been abused before by unknown attackers to hijack hashrate away from the intended pools.
Aside from a number of inefficiencies, StratumV1 also fails to offer miners a practical way to construct their own block templates and still enjoy mining in a pool. All these issues are addressed with the extremely desirable StratumV2 (originally “GBT”, then “Better Hash”) which we will return to later.
Hardware/Firmware
Before getting to the solutions, we’ll deviate from discussing pool/miner dynamics – as this article would be incomplete if we failed to bring up the fact that there are only two companies manufacturing ASICs at any meaningful scale – Bitmain and MicroBT. There are others, but realistically almost all hashing is occurring on machines manufactured by those two companies.
This is not good for obvious reasons and essentially stems from the fact that chip fabrication is extremely difficult to do and thus hyper-centralized.
It’s outside the scope of this article to go into solutions here, but there are folks working on making home mining something far more practical (in North America the main issue being the requirement for 220-240v and dealing with the obnoxious noise). The contention among those working on these pleb-mining projects being that if it becomes doable for enough every-day bitcoiners, they can start to represent a significant percentage of the total hashrate of the network, which is preferable to most mining operations operating at a scale where they are wide open to regulatory interference.
This task is made far harder by the fact that the firmware is closed source. Even custom firmware that can “jailbreak” an ASIC tends to be closed source in order to ensure those using it pay dev fees (i.e the cost for your awesome aftermarket firmware is mining on behalf of the team making the firmware.)
The stock firmware on ASICs – particularly Bitmain’s – is a great indication of how comfortable they have become with their dominance of the market. Beyond being closed source, it’s clearly malicious. You are forced to mine on their behalf upon powering up an Antminer – though a miner can at least prevent this from happening by blocking the connection (or installing aftermarket firmware, but then you pay dev fees instead and those can’t be blocked without the miner refusing to mine at all.) Bitmain has also been caught several times adding malicious backdoors to the firmware for their miners (see Antbleed), and actively works to lock out aftermarket firmware developers.
The fact that stock firmware does this is frankly outrageous and clearly highlights the dire need for competition in ASIC manufacture.
Would anyone feel comfortable if the rules of the network were enforced by closed source bitcoin nodes? Further, imagine those nodes caused users to lose BTC to the developers of that software – and we all knew that was happening. Would anyone accept that? When it comes to mining, almost no regard is paid to the sovereignty of its participants. Of course node software and ASIC firmware are not of equivalent importance and we of course place more scrutiny on the former as we should, but the latter is not immaterial and is certainly being unacceptably neglected.
With all that said, let’s move on to some of the solutions, focusing in particular in increasing the scope of what’s possible as a miner and improving on existing models.
P2Pool
There is not much to say on this beside the fact that it decentralized basically every aspect of pooled mining. While this does many desirable things at a small scale, it requires that every user download, verify, and track the shares of every other user and prove to each other that they are accounting for everything correctly in their templates. Achieving this in an adversarial environment at any scale is essentially an impossible task. Due to the fundamental nature of pooled mining, far more resources are required than what is needed to run a Bitcoin full node, not to mention making things more complicated for the miner.
For these reasons it has been ignored by most, and used only by more technical users or idealists who – understandably – cannot bring themselves to mine with the alternatives.
StratumV2
This is most certainly the lowest hanging fruit. It offers practical remedies for many of the issues mentioned in this article.
Firstly, by allowing encrypted communications between pools and hashers, ISPs and any other entity with access to your network traffic will no longer become trivially aware of the fact that you are mining (or the extent to which you’re doing so). “MITMing” you into hashing on an attacker’s behalf consequently also becomes impossible, or far less trivial.
Secondly and perhaps most significantly, it’s also capable of allowing hashers to construct their own block templates, so while pools would remain trusted coordinators of reward splits, and likely still custodians of block rewards – this would nonetheless represent a shift in power away from pools towards miners and be unequivocally a good thing.
Lastly, there are a few other improvements that I encourage you to check out here.
A world in which StratumV2 is the norm, along with enthusiasm from miners to actually construct their own templates (ideally a pool would offer an incentive to miners who did this) would enjoy a far more resilient Bitcoin.
The community is essentially unified in working towards upgrading the mining ecosystem to StratumV2, but historically miners have generally avoided using these solutions due to additional effort (albeit trivial compared to p2pool) and no incentive to do so.
Rounding up
There is great room for improvement with or without StratumV2. What’s needed is a pool that offers miners the ability to take direct custody of their coins while mining. This requires that a pool (or its hashers) construct block templates in which miner’s rewards are paid out directly in the coinbase/generation transaction contained within every block. The fact that this is impractical under the FPPS system means any pool doing this would face reluctance from some miners, but those who switched would enjoy greater transparency as Bitcoin itself would – above some threshold – be paying them directly with an easy to verify split of subsidy and fee revenue. This can be coupled with pools – pre-stratumV2 – at least making miners aware of block templates constructed on their behalf prior to blocks being solved, and post-stratumV2 simply needing to verify that all miners are constructing templates that accurately reflect reward splits without the scaling implications of all miners having to do this continuously.
The pool can also address the reluctance of miners to make their own block templates by offering incentives for miners who do so, by – for example – charging them lower fees. It seems that if miners are unwilling to take on the burden of doing this even once it becomes practical again, then this additional incentive might become necessary.
The above suggestions would dramatically improve things.
Many initiatives and announcements are coming up regarding ASIC manufacture and pool infrastructure that hopefully should be welcome developments for anyone interested in ensuring mining trends towards greater decentralization.
This is a guest post by Bitcoin Mechanic. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
A thorough analysis of the entire mining ecosystem, from ASICs to mining pools, looking at the systemic risks and issues that exist throughout the industry.
Crypto News
Bitcoin Hash Ribbons Indicator: Miners Show Unwavering Optimism as Hash Rate Hits New Highs
Bitcoin miners are sending a clear message: they’re more bullish than ever. As we observe new all-time highs in the Bitcoin network’s hash rate, the commitment of miners underscores their confidence in the asset’s long-term potential.
The Hash Ribbons Indicator Explained
The Hash Ribbons indicator provides insight into miner activity and sentiment by analyzing the 30-day and 60-day moving averages of Bitcoin’s hash rate. When the 30-day moving average crosses above the 60-day, it suggests a positive shift, often interpreted as miner capitulation coming to an end. This shift typically signals that weaker miners have exited the market, leaving only resilient participants and setting the stage for potential price recovery.
Why All-Time Highs in Hash Rate Matter
As the Bitcoin network’s hash rate climbs to new peaks, it highlights the increasing amount of computational power devoted to securing the blockchain. This rise not only reflects strong miner confidence but also enhances the network’s resilience and security. In the current climate, these hash rate highs indicate that miners are holding their ground, undeterred by market fluctuations.
Interpreting the Current Hash Ribbon Signal
The chart above shows a recent bullish crossover in the Hash Ribbons, indicating the end of miner capitulation. Historically, these crossovers have often aligned with favorable price action in the weeks and months that follow. With hash rate reaching unprecedented levels, this crossover suggests that miners anticipate a period of sustained growth.
For an in-depth look at the Hash Ribbons Indicator and to stay updated with future movements, visit the source here: Bitcoin Magazine Pro.
Bitcoin’s hash rate is surging to new all-time highs, signaling strong miner confidence in the network’s future. Discover how the Hash Ribbons Indicator helps decode miner sentiment and why this bullish crossover could hint at upcoming price momentum.
Crypto News
The Digit Addiction Pandemic
The Dystopian Present – Fiat Has Made Us All Digit Addicts
Everyone wants to make you an addict. Some people sell illicit drugs on the black market and want you to become addicted to them so they can profit from you. The dealers naturally focus on drugs that are physically addictive because they are often the hardest to kick. When they do manage to addict you to them that becomes harder and harder over time. For drug lords and dealers, this is heaven. This virtually guarantees that all customers will be regulars, at least for as long as they survive. For the addict, it depletes the quality of their life. They start to live from one fix to the next. The problem for the dealers is the illegality of the product. Staying in business as a dealer requires a lot of care, caution, and expense. Additionally, much of the total addressable market (TAM) is turned off by drugs’ bad reputation. So what do you do?
If the problem is legality, make legal drugs. The drugs sold in pharmacies are legal and in many cases no less addictive. There’s a drug for every complaint and three dozen for the common cold viruses. Some, like a simple nasal spray, are addictive and can lead to a chronic condition which “locks” you in for life. It’s the same basic business model as the street dealer but with less friction, lower risk, and much better optics. The barrier to entry is that the clients have to be “sick”.
Now consider supermarkets, where the market is perhaps saturated, but the TAM is almost 100% of the population – everyone eats. Junk food can be quite addictive and can make its users sick. Sick junk food junkies might turn to pharmaceuticals without changing their habits, compounding the problem. Now the cycle is complete. As bad as such addictions might sound, and as widespread as they are, the current global addiction is yet worse: the addiction to digits pandemic.
The first case of addiction to digits is in terms of fiat currencies. They have the benefit of transacting with everyone in a particular country. It is very convenient to use those digits as a medium of exchange. Those digit addicts usually say: “I can’t buy anything with bitcoin, so I am not going to buy any.” They are saying, “I am addicted to the benefit of a convenient medium of exchange even though my purchasing power will deteriorate.”
Some people realise that money is usually static. It’s active when people are transacting and passive when they’re just keeping it for later. To be an effective store of value, money needs to preserve (or grow!) its purchasing power over time. A person should not earn the same money twice. When I have savings I should not be forced to actively manage it. So whole market segments focus on the passive use of money. It is strange how the system forces you to actively use your money to solve the passive use – it kind of defeats the purpose. Still, you can’t let it degrade because of inflation. Here there are a few main categories – bonds, real estate, equities, gold, and art.
The bond’s benefit is its promise to return more digits after some period. “Guaranteed” by the state. And they truly do! They give you the benefit of increased digits and at the end of the period even with the more digits, your purchasing power is less than when you started. Still, it beats the ones that just saved. The bond digit addicts will not buy bitcoin because bitcoin in cold storage pays no interest.
The real estate benefit is a digit “yield” in the form of rent and the digit value of the property will be higher. The value of the real estate is a function of the returns it generates every month. The digit value of the building increases because the degrading of the fiat digits happens faster than the degradation of the physical structure. Real-estate addicts will not buy bitcoin because it is not physical and does not pay any digits for rent.
Financial “engineers” invent products for people to bet on against each other. The whole premise of a stock market is that you sell something you have for another thing that may increase in digit value. Each trade has a winner and a loser, but like in a casino, the house always wins in the end. Just another addiction with another kind of dealer. The Bitcoin system is unifying everything into one. In a bitcoin economy, there are no losers because one person’s profit is not necessarily a loss for another. Those addicts would not buy Bitcoin because there is no betting system in Bitcoin and can’t do call or put options or other illusionary “engineering” things so the insiders benefit. If you just buy Bitcoin and HODL for when you need it then all the dealers of that addiction will be out of business.
Gold addicts are addicted to the metal without realizing how it can be used against them. How can anyone tell us how much the market cap of gold is if no one can tell us the exact weight digits of gold that it is found? This is the true Schrödinger’s cat these days. Now owning gold is represented only by a number on a screen, reducing it to the same status as fiat. With fiat currencies, one piece of paper has the number 1 on top and the other has the number 100 on top. We do not care that they are on the same paper value but we value the digits that are written on the paper. The gold digit addiction is the same, but it took longer to foster because everyone can measure its weight rather than rely on arbitrary numbers. Nobody can put 100 on top of 1 kilo of gold and tell you that it is 100 kilos. But since digital displays of gold ownership have largely replaced physical possession, it follows the exact same mechanism as paper. Gold addicts say that bitcoin does not have any physical (metal) properties, so it has no value, and they won’t buy it.
How about the art digit addicts? Their views on bitcoin aren’t very well known since they aren’t very active in the discourse. The benefit of art is in the emotions it evokes. When Bitcoin starts to demonetize the art industry, we will see art digit addicThe Digit Addiction Pandemicts defending its value. Art should be art, it should not be a method for a store of value.
The next digit addiction dominating today’s societies is loyalty programs, like air miles, and loyalty points for discounts, promotions, and exclusive offers. Even to this day, my grandma is looking through the brochure of EVERY store in the area to find a discount of 10 cents cheaper bananas per kilo. Because the companies can’t print currency digits they print loyalty digits. They not only have much greater purchasing power inflation than currencies (most of the time) but they also have much greater controls over when, where and how to actively use them. The addicts of the loyalty digits start orienting their lives around the loyalty program digits and the dealers love it.
The next digit addiction is social media. People get addicted to subscribers, likes, views, etc. The benefit they provide is the platform, the ability to reach a far greater audience than through face-to-face interactions. This addiction is not directly connected to money, but all those digits are what promoters, sponsors and everyone is looking at sponsors and subscribers automatically convert metrics into value to assign worth in fiat.
The next digit addiction is to video games. Gamers get addicted to the tokens needed to “unlock” the “special” item. They start chasing those token digits so hard in the virtual world that they forget to live in the real one. As young players age, their addictions often graduate from game tokens to other digit dealer systems.
The current FOMO digit addiction is to blockchains. Their benefits include faster transactions, more anonymity, and smart contracts to get you hooked. If the creator is not a direct scammer and truly wants to give those benefits to people he is essentially saying that the benefit that he gives is more important than incorruptible money. The benefit of smart contracts is greater than incorruptibility. That is probably a misunderstanding that secure and decentralised money is the base that gives you certainty to build everything on top. If you want to launch rockets into space you do not change gravity to make your use case easier to achieve. If you do, you will destroy all the sports where people need to jump. All the tall buildings and trees will be collapsing because for winds it will be much easier to tilt them. You destroy the way of life on earth but it is nice that we can go to space. If you believe that the benefit is worth it then do the work and build it on Earth without destroying it. Build on Bitcoin!
The next addiction is to the digits of the custodians. Bitcoin ETFs were hotly anticipated and have received plenty of acclaim. But their custodians are getting the punters hooked on convenience. Give me your bitcoin in my custody because you are inadequate to hold it yourself. Give me your Bitcoin, and I will give you digits.
The common trait among all of these digit addictions is that they offer some benefit in return for dependence on certain digit lords. Once people experience the benefit, it becomes that is the thing that traps them. That is one of the struggles of the Bitcoiners to accept that there are benefits to all of the addictions mentioned above. Bitcoin has its benefits and limitations, but the benefits of Bitcoin do not negate the benefits of other things.
This is the source of the greatest conflict between bitcoiners and crypto bros. Bitcoiners should not dismiss other crypto just because they are shitcoins. Instead, we should enter the arena and out-compete them just like we have been for the past 15 years. Some of them do provide nice benefits to get people hooked to their blockchain digits. When we as bitcoiners do not compete with them and learn what we can, we are going to deprive Bitcoin of those benefits. Bitcoin probably shouldn’t adopt every feature that emerges somewhere in the cryptosphere, but competition fosters improvement. As a former professional athlete, I can say that my skills improved the most after losing to a weaker opponent. When a weaker opponent defeats a stronger one, it only means that he revealed a weak spot. Just because the weaker opponent won does not imply that the rules are unfair and need to be changed or the weakling should be disqualified. That is the tactic of the fiat digit lords. If we want to beat more powerful opponents (i.e. fiat currencies), we must also face the weaker ones. Bitcoin’s obvious weak spot was, until recently, its throughput. Enter Lightning Network.. Privacy? Welcome to eCash on top of Bitcoin.
The Battle for Control Continues in a New Domain – The Digit Lords Are Capturing Bitcoin Digit Addicts
The addiction is so ingrained in all of us that even when someone understands Bitcoin and its implications, they transfer their digit addiction onto Bitcoin. For them, the addiction manifests in HODLing, and the object of their obsession is “How much do I have??” and “Is the number going up??” I HODL and want the digit value to rise to give me the “fix” that I need. Still intoxicated by other digits, they are the easiest prey for the custodian digit platforms. By contrast, real Bitcoin maximalists value proof of work above all. Their primary goal is to build a better life for everyone through Bitcoin. Unless you’re building, you’re just a digit addict chasing your high with Bitcoin.
Different people get addicted to different digits. But even if someone benefits a lot from their addiction, that does not mean it is right for you. Michael Saylor was instrumental in helping me recover from my fiat addiction and going clean on Bitcoin. At the same time, he’s hooked on the custodians’ digits. After all, he has billions in the custodians’ digit ecosystem. He preaches to people that it is better to have more custodians of bitcoin. Let’s go ask all the “gold bugs” how that thing turned out for them. Do not get me wrong all the benefits that he is saying are right and they are benefits so what is the difference?
The difference is in the control. In the addictions described above, the users get the high, but they also get hooked. At the same time, a small group keeps control over the digits the addicts use and claims themselves as digit lords. In all those digit addictions, the mechanism is the same. Fiat digits are controlled by fiat digit lords. Air miles digits are controlled by the airline digit lords. Crypto bros are producing ever more blockchain digits with benefits that Bitcoin does not have (yet) to become the blockchain digit lords. The custodian’s digits are controlled by the screen digits lords. They all control the addicts through the digits.
Another reason why the addiction analogy fits so well is that detoxing is so hard. Wonder why “Orange Pilling” is a struggle? Have you tried to take the cocaine away from an addict, or the insulin of a diabetic, or the chocolate from a fat kid? Resistance is natural. A real estate mogul who has spent decades mastering his trade and amassing a fortune is naturally going to resist any force that could demonetise his industry. The HODLer junkies profiting from BlackRock’s ETFs and similar custodians will naturally resist any threat to the number-go-up fix. That is a marriage made in heaven. For the HODL digit addicts, you can see what infrastructure the custodians are setting up to capture you. Check the work of #WhitneyWebb and #MarkGoodwin in their collaborative articles about that topic.
Gold provides a clear example of how the digit custodians work. To analyse gold, you go to a goldsmith who can assess the gold’s weight and purity, not an ETF dealer. The ETF dealer is just the street pusher for the ETF digit lords. They can describe the imaginary trend lines on top of their imaginary digits that are disconnected from the metal. Unless that particular ETF dealer has a direct line to the gold digit lords, his opinion is absolutely worthless. He is just the digit addiction dealer pushing someone else’s product to get his cut. Bitcoin ETFs are no different. Bitcoin can be used as a real store of value! In the fiat system, it is mainly “You store my value!”
The digit lords’ model has its weaknesses. Some try to exploit the model’s mechanics for their own benefit and to avoid becoming addicts. For example:
- counterfeiting fiat
- insider trading in the store of value digits
- hard and soft nepotism in the loyalty digit programs
- hacks in games
- all of the above in blockchains
Even though they are not obeying expected addiction behavior, they are still addicts by chasing the same digits. The difference is that if they succeed they are branded criminals (hackers) by the digit lords. They are using the control system as designed and demonstrating that the whole system is exploitable. The exploiters can attain enormous power by those actions but that is not the intention of the system. The digit lords need control to remain a privilege and guard it jealously so that no one else can own the digits but them. That is why they need us to be hooked: no single person’s effort can overcome control over the digits. That is why any system that is disconnected from work will fail in the Bitcoin era.
Bitcoin is the panacea able to cure all addictions. There is no free lunch in Bitcoin. Once connected to the open and permissionless Bitcoin network, all wallets, all investments, all loyalty promotions, all social media, all gaming tokens, and all blockchains will benefit from bitcoin and their first-mover advantage.
First Look at The Addiction The Right Way – Then Take Responsibility to Break It and Be Free
Beyond the number go up addicts, analysts are also addicted to the models evaluating all the addiction digits. If Bitcoin is something genuinely new, then why are we using the same old modeling principles? The power-law model fits a number of real-world phenomena, including bitcoin through most of its history. From the growth of cities to metabolic rates and many other correlations relating to energy expenditure, the power law applies in a surprising number of cases. The power law is a functional relationship between two quantities, where a relative change in one quantity results in a relative change in the other quantity proportional to a power of the change, independent of the initial size of those quantities. In other words one quantity varies as a power of another. Funny how the name of the model coincidentally (or not) suggests using it for things connected to power. Bitcoin is inseparable from energy (power), so the power law is probably the proper tool. That is why the power law of the hash rate will never break even if the fiat price power law might.
Since engineers have built Bitcoin, their models explain the technology best. But when it comes, to financial analysts they are not modeling reality – they are trying to model the collective psychology about particular digits. Elon Musk is not going to land a rocket on Mars powered by likes or fanboys. The only way is to model reality and then build it. Reality is uncompromising, and inspiration only takes you so far. Either the model is accurate and the execution works, or the rocket explodes. Over time, reality will defy even the best financial models, but they can accurately capture what the collective psychology values in the short term. That’s why the financial “engeneers” hypnotize the digital addicts and get them hooked. In the meantime, Bitcoin continues to do its thing regardless of what any of us think about its future – it is an uncompromising force of nature.
Perhaps there’s a less fickle way to evaluate companies. Let’s take NVIDIA, the current FOMO stock. The digit value unit of a stock is connected to a digit unit of the share. Neither quantity is directly connected to energy and, therefore, can be created at will. But what if someone maps the produced GPUs by NVIDIA? It is just a hunch but it probably follows a power law – the production capacity of the chips is limited by physics. The production of the company can’t break reality to scale but when you cross-reference it with the stock price, you may see when those digits are driven by the current psychology of the “market” or by fundamental value. #GiovaniSantostasi is the person to do the math on that and say if he can innovate a new way of evaluating stocks with the power law model. I may be talking out of my ass for the stocks valuation application of the model but he proved that this is the only model that maps the journey to hyperbitcoinisation.
And what about digits that no one controls? Some digits are connected to reality, which is very useful: the digits for time, the digits for length, the digits for weight, and the digits for temperature. Reality does not care about what we think about it. Reality just is, and we use digits to understand it. That is the language of the engineers, not economists. The numbers not connected to physical energy are numbers backed by a group’s opinion. They can be captured and controlled. Engineers’ digits are free. They resist control. Even those who haven’t mastered them can benefit from those who have. They are the ones building the roads, the computers, and everything else we need in modern life. The difference between open digits and controlled digits is that the addicts of the controlled digits depend on the digit lords for where, when, and how they can benefit. You can’t use the digits of one country outside its borders freely. You can’t use one company’s loyalty digit points with its competitors. You can’t use the token digits from a game to buy a coffee. You can’t buy MicroStrategy stock digits without a bank account.
Michael Saylor always says that there is nothing worth buying in Africa even if you had a billion dollars to spend. That is grossly biassed towards the passive use of money – saving their purchasing power. If you are a billionaire it sure is a problem. But if you want humanity to flourish, the most important thing is to build stuff! Africa is a very important part of humanity, and we need to figure out what to build and how to facilitate spending, so they can get to the point of caring about store of value billionaire digit addiction problems and even beyond the addicion. Saving is just a partial view of that one store-of-value use case. My point is not that Saylor is wrong to protect his castle. Rather, we need to build castles for everyone and then they can start protecting them. His blind spot is that the custodians now want to co-opt Bitcoin as a store of value so they can continue the 2% inflation game and remain digit lords. The difference is that with Bitcoin the 2% inflation game runs on a decentralised global standard. Different countries and banks can connect to it and profit, but that attracts the degenerate custodians (companies, banks, and states) that will print digits on top of Bitcoin. At some point, a bank run on the most degenerate custodian digit lord is inevitable. Then the domino effect of bankruptcies that they can stop in the fiat system is not something that they can do in the Bitcoin system. So buckle up! The biggest volatility may lie ahead. The people that we call poor do not have access to custodian institutions, but now they can run their own Bitcoin nodes. For the first time ever, unprivileged societies have the tools to take back all the purchasing power that was stolen from them by the digit lords without spilling blood.
Take control of the math you use, and take control over the money you use, so you can take control of the life you lead. Otherwise, there will come a time when you will beg someone in control to come and save you. This message is addressed to those without control, but this message is also relevant to those who already realise what Bitcoin is and need to prepare for the day when the addicts come and beg us to save them. We need to start working on becoming people of virtue #Alex Svetski. We must not become digit lords, but actually detoxify people effectively and cooperate. Do not sit on your hands, just HODLing. Build that future. Anyone who’s been in Bitcoin for more than 4 years (one cycle) should be running a node and taking more control into their hands. Anyone who has profited from Bitcoin’s appreciation should be thinking about what they want and how to integrate Bitcoin into those goals. No coding or technical expertise is required. All the analog infrastructures need to be integrated with the Bitcoin infrastructure. Barbers need to start accepting Bitcoin and telling the community. The barber infrastructure has to be connected to the Bitcoin infrastructure along with all the others.
The digit lord companies should consider replacing air miles with sats? Replace in-game tokens with milisats? The digit lords could do this immediately. This is Bitcoin’s ultimate, imminent network effect. Inflation in all the addiction digits will accelerate. The digit lords will do everything they can to keep addicts in their digit drug ecosystem. At the same time, companies that have already adopted Bitcoin will actually save them from bankruptcy. The digit lords will then serve all of us, and whoever gives the most benefits will be the one that WE choose, and they will fight for our vote and support.
Until you drop the digit addiction, you will never be free. Reality is uncompromising for those (companies or countries) who do not navigate its rules/laws properly. This is exactly the problem that the digit lords face as long as the digits are connected to reality. Someone can always verify the accuracy of the digits. I can lie about today’s date, but you can verify. I can lie about the weight of something, but you can verify – maybe not applicable for gold :). I can lie about your height, but you can verify. I can lie about the temperature, but you can verify. Now, for the first time ever, money digits are connected to reality through Bitcoin, and everyone can verify! Lies won’t last long. Just ask the FTX, Celsius, and Terra Luna digit lords. They may control their closed-digit systems, but no one controls reality. That is exactly why we will win #MartyBent! The digit lords are addicted to that control, but people are building solutions to transfer control from the digit lords to individuals. Whether the digit lords realise it or not, they are losing ever more digit addicts to a system that is detoxing them. Losing addicts is fine if you can get them hooked on another substance. Referring back to the chemical drugs mentioned above, that we looked at at the beginning of the article. This is why digit lords will do anything to keep their addicts hooked on the next digits. Now that people have Bitcoin – money inseparable from reality – we have clear detoxified heads. We will never go back to the addiction. The current dynamic is that the digit lords will chase our attention, but we will never give them back the control. I will happily take a discount on a vacation flight, but I will not serve the digits lords’ agenda. I will not obey the digit lords’ vacation plans for me whatever loyalty digits they offer. They will serve my plans and orient their services around my needs.
One of my favorite phrases from #JeffBooth: There is no they; there is only we! It is incumbent on all of us to take control and become “we”. The digit lords are the “they” people usually refer to. In the current system, there are digit lords, digit dealers, and digit addicts. In the Bitcoin system, addicts detox, dealers build detoxing tools, and no one is a digit lord. And brings us back to Jeff’s statement there is only we in the Bitcoin system!
Congratulations on reaching the end of this article! Few people take any time to digest anything more demanding than a meme, but not you. If these ideas are worth spreading, please share the link. If you think that they are worth discussing on a podcast, tell the podcasters to hit me up, and I would be happy to chat with them. May we all live without addiction and build what we want for ourselves and for the kids #GregFoss.
P. S. Love to all the orange brothers and sisters out there. Godspeed!
This is a guest post by Ivan Makedonski. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
A look at the compulsive and addictive behaviors encouraged by the structure of the fiat world.
Crypto News
Great Scott! If Only We Could Go Back to 2009 to Buy Bitcoin!
It’s 2024. Donald Trump has just clinched the election again, Bitcoin’s hit a new all-time high, inflation’s running hotter than the DeLorean’s flux capacitor, and everyone’s wondering, “What’s next?” As we all wrestle with the wild pace of history, there’s a flash in the sky, a crackle of lightning, and who should appear but Doc Brown himself. He hops out of the DeLorean, eyes wild and hair wilder, and says, “Forget sports almanacs, Marty! We’re going back – not to 1985, but to 2009, before anyone knew what a Bitcoin even was!”
Yes, we’d all love to jump into that time machine and zip back to January 3, 2009 – the day Bitcoin’s genesis block was mined. Get it cheap, stockpile our wallets, and maybe even tuck a few under the couch cushions. But here’s the catch: Bitcoin doesn’t work that way. Its greatest strength? “Everyone gets the price they deserve.” No one gets a free ride, and Bitcoin doesn’t have a rewind button – only a road forward.
Doc Brown was onto something when he said, “Roads? Where we’re going, we don’t need roads!” The path Bitcoin forges isn’t one of shortcuts or regrets. It’s a one-way journey to the future, with a price tag that keeps moving forward. It doesn’t care if we wish we’d started at $1 or $100 – it’s relentless, and that’s the point.
Today, people freeze at the current price, haunted by unit bias, plagued by a “missed opportunity” that exists only in hindsight. But Bitcoin’s value doesn’t lie in a magical price point of the past; it lies in the present – in its steady march into the future. And standing on the sidelines, waiting for some impossible dip or trying to summon 2009 prices, is like being Biff: always scheming, always missing the point.
If Marty learned anything, it’s that you can’t stand on the fence and hope things will work out. Biff, forever clueless and out of touch, is the perfect example of what happens when you miss the future staring you in the face. Imagine Biff in 2009 – he’d be mocking Bitcoin, laughing it off, and then spending decades regretting every lost satoshi. Don’t be a Biff. Don’t let hindsight or wishful thinking stop you from joining the future.
We all wish we’d snagged Bitcoin at the price of a coffee, but that DeLorean opportunity is long gone. Doc Brown would tell us the same thing he told Marty: “The future is what you make of it, so make it a good one.”
So, next time you’re looking at Bitcoin’s price today, heart pounding like you’re about to hit 88 mph, remember: there’s no going back to 2009. There’s just the next block, the next satoshi, and the next step forward. Where Bitcoin’s going, we don’t need time travel – we just need the courage to act. And like Doc would say, when it comes to Bitcoin, where we’re going, we don’t need regrets.
This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
As we barrel through 2024, the dream of hopping in a DeLorean and rewinding to 2009 to buy Bitcoin at pennies per coin tempts us all.
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