Very interesting take on the future of the mining industry.
nostr:npub16vzjeglr653mrmyqvu0trwaq29az753wr9th3hyrm5p63kz2zu8qzumhgd, what do you think of the nostr:npub10vkwadgkfkg9vzpe04a6rhpzrd8rlw0r84qelag5hgtycrykgz3qvty3ep model? They are basically splitting the capital requirements among their users while trying to keep the incentives aligned.
nostr:note1r7pugrr2gd9raf2jjtv33yd3wpk3u4f3wfl6w8ex7w4z7lhg7c6qru3gu2
Yes.
Traditional cloud mining is a terrible model and the results kind of demonstrate that. So many things can and do go wrong. It's a fully trusted setup in a very tough business with customers who don't really know what they're getting into.
In the worst case you have someone like Compass Mining brazenly steal their customer's money. This is no better than a shitcoin pump and dump scheme. They just added an extra step of spending their victim's money on ASICs.
Even in the best case where the company is run well by honest people the customer still loses because of the underlying economics of mining that I described in the opening post. So not only is the customer acquiring bitcoin more slowly and at a higher price than a spot market purchase but you have also added trusted intermediaries to purchase, host, and maintain the hardware. When the hardware breaks the customer bleeds profit, hoping the hosting provider will fix it quickly and cheaply. Customers have very little transparency into this process and are utterly at the mercy of their hosting provider. It's just a terrible investment model, all things considered.
Purchasing hashrate from a proxy is a slightly better model because you abstract away the owning and operating of the hardware and just buy the end product: hashrate. It's still pretty inefficient, though, because you need to maintain an always-on proxy to shuttle those packets across the network. You have the trust the hasher to keep up their end of the bargain, which requires auditing the hashrate. The end user needs to have a pool account, which is probably KYC'd. The whole arrangement is complex, centralized and prone to disruption.
I worked at a mining startup building a really cool virtual cloud mining product. It would dynamically adjust the hashrate at the proxy to ensure precise delivery of the contracted amount of hash. And it worked! The tech stack was awesome but we got sunk by regulatory risk. There was no product market fit because A) mining is not profitable and B) regulatory barriers were too high. Only "accredited investors" were allowed to purchase contracts.
The Hashpool model is radically simplified from the customer's perspective. All of the mining hardware, hosting requirements, network traffic, and KYC risk is abstracted away from the end user. When you buy ehash, the shares have already been mined, packets delivered, and identities have been anonymized. You are literally just buying an anonymous contract with the mining pool to deliver bitcoin rewards. It is still a trusted system, but there is really only one thing that can go wrong: the pool doesn't deliver your payout. So find a pool you trust with a good track record and hash away.
And it will be self-hostable! If you can't find a pool you can trust, run it yourself! Be the KYC-free onramp you wish to see in the world. 🤙
Thanks!
I do agree: most schemes require a lot of trust combined with a lack of transparency and impossible audits. Thanks for this thorough explanation, much appreciated!
