Decentralization Is the Way Forward for Cryptocurrency Mining – Here’s Why

Cryptocurrency mining – the power behind our decentralized currencies – has reached a fork in the road of its young life. Giga Watt filed for bankruptcy in late November this year, Genesis Mining is facing hard times, and Bitmain’s future is in limbo.

But despite massive depreciation, and miners leaving the cryptocurrency space en masse, it’s not all doom and gloom for cryptocurrency as a whole. Institutional investors are coming into the crypto space, and the recent decline in mining could be good for persistent miners, mining farms and pools worldwide.

 

How Centralized Mining Failed

If there’s one lesson for miners to learn from in this bear market, it is keeping down the cost of mining, with emphasis on efficiency over scaling up. Over the course of the year, mining has been increasingly unprofitable even for some enterprise miners. There are a number of compounding factors for the dry spell such as:

  • recent decline in the cryptocurrency market
  • strict regulations and increased power rates for cryptocurrency mining
  • rapid increase in mining difficulty – faster than market demand and cryptocurrency adoption
  • cost of outlays in running the business increase with size (e.g. bigger facilities, cooling systems, power consumption, hiring more employees for maintenance and upkeep)

Diminishing returns over a period of time (e.g., Bitcoin rewards halve every four years) coupled with volatility in the cryptocurrency markets makes it very risky for miners to scale up beyond a certain threshold. In many cases, mining profitability is only as good as the market conditions. The recent turn of events with the price of cryptocurrency, and the equivalent of approximately 1.3 million Antminer S9 units turning off as of late proves how large-scale miners have become so dependent on cryptocurrency markets in terms of mining profitability.

The arms race towards bigger mining facilities and acquiring more efficient but expensive mining hardware also tends to backfire for some mining businesses who are now struggling to pay off their debts. State regulations have also put a lot of strain to the mining industry by imposing higher rates for cryptocurrency mining. This, along with rapid increase in network hash rate/difficulty, and a long drawn-out bear market spells disaster for many businesses in the cryptocurrency mining industry, particularly those who have overspent with expectation of higher returns through market demand and cryptocurrency adoption.

Enterprise-level miners might have increased their mining power with a large share of the network hash rate which might have previously worked but because of the way proof-of-work cryptocurrencies such as Bitcoin are built large-scale miners are running into difficulties. Miners are finding with increased network hash rate there will come a point where mining and maintenance costs start to eat up their gains unless they find access to abundant or much cheaper energy source as soon as possible, or if cryptocurrency continues to gain widespread adoption. (Imagine if every miner in the world does the same thing and Bitcoin suddenly drops to $1,000. How long can these enterprise miners hold on until Bitcoin goes back up again to $20,000 or until mining difficulty drops significantly lower?)

Lastly, centralized mining puts a lot of strain to the power grid that governments won’t have much of a choice but impose exorbitant rates for mining operations in order to “force” miners to slow down, or run the risk of overloading the grid, severely affecting all other industries in the country. The only option for large-scale miners at this point is scaling down and help redistribute hash power to the cryptocurrency network, e.g. shipping their mining rigs to places with abundant and more affordable energy source. (In Venezuela, it only costs $531 to mine Bitcoin).

 

Why Decentralized Mining Is Crucial for the Cryptocurrency Space

More secure compared to centralized mining. Centralization of mining power misses the whole point of having a decentralized cryptocurrency such as Bitcoin. Cryptocurrency mining was never meant to be a centralized endeavor, but a shared obligation to secure the network where one’s willingness to share computing power to mine transactions and prevent double spend attacks is rewarded with cryptocurrency. Centralization creates weaknesses to an inherently secure decentralized network by establishing a single point of failure and opens up the possibility of double spends and censoring transactions. (This inevitably results in weaker adoption and/or the cryptocurrency’s demise.)

Distributes risks and rewards to miners. Higher hash rates do make a difference who gets the mining reward. But at the end of the day, it all boils down to probability. Suppose every miner in the world mines at exactly the same hash rate. The way Bitcoin’s algorithm was designed meant that there is no particular way to tell who will be the first to find the next hash since they would all be making random guesses at a given rate. Higher hash rates increases the likelihood of being the first to make the right guess, but so is the risk (power consumption = money lost). A better alternative to mining centralization is by using mining pools or by having small mining farms spread out to places where cost of running the mining the business is much cheaper.

 Distributes power consumption. With less centralization in mining power, miners will be able to utilize cheaper electricity instead of relying solely on the power grid. It would also encourage miners to be more creative and explore ways to make cryptocurrency mining a lot greener, or, as mentioned earlier, find places with abundant supply of energy source (e.g. hydroelectric, geothermal, solar, etc.)

 

Final Thoughts

The 2018 bear market has been an eye-opener for all of us, not only in terms of volatility and value of cryptocurrency, but also the dangers and consequences of going beyond what is intended for in cryptocurrency mining – decentralized and cost-effective. Bitcoin was just as secure back when people mined them in their PCs and laptops as it is today with more powerful ASIC miners and GPUs. It’s just a matter of perspective. Hopefully, this year has brought us some important lessons to help us with our journey in cryptocurrency for the year 2019.

Facebook’s Update on Crypto-related Ads – Why Should It Matter?

Facebook hit the news when it back peddled on its decision to ban cryptocurrency ads outright from the social media platform. This has now made technology companies, cryptocurrency and blockchain communities optimistic this move will set off a precedent for other advertisers to follow, particularly Google and Twitter, who earlier warned of a similar ban on cryptocurrency ads.

What are the implications of Facebook’s reversing its view on cryptocurrency, and what are we to expect about the future of blockchain technology?

 

What Changed After the Update?

Facebook now accepts cryptocurrency ads, but only from pre-approved advertisers who filed their cryptocurrency products and services onboarding request. ICOs and promotions associated with deceptive high-yield investment programs are still banned from advertising.

The update took effect after a six-month hiatus in cryptocurrency ads on Facebook. Apparently, the tech giant have found compelling reasons for reversing some of its decision after being dismissive on anything crypto-related. (uhhh… money of course!) There are also some rumblings Facebook plans on stepping into the cryptocurrency space with their own initial coin offering.

So far, legitimate cryptocurrency businesses like Cointelegraph.com have not been able to boost their posts a day after the ban was lifted. It’s very likely that Facebook is implementing more stringent rules and are, indeed, checking on the advertiser’s credentials with painstaking effort. We’ll learn more about the specific details of the screening process as they unfold.

 

Not a Complete Turnabout

Facebook didn’t go all the way, and instead chose to “loosen” some its policy on cryptocurrency advertising. A recent post from the product management director indicates an eligibility check, which takes into account licenses and pertinent documents submitted by each applicant. Facebook wants to avoid another Bitconnect incident or turn it a breeding ground for ICO scams (70% of advertised ICOs failed to materialize).

There’s no guarantee that every cryptocurrency and blockchain businesses would receive their stamp of approval. The least they can do for now is hope they don’t get screened out or send the wrong signal to the management and mistake them for ICOs or HYIPs. Facebook is open to the idea of revising this policy as they see fit and encourages everyone to give their feedback.

 

More KYCs and Background Checks on Advertisers

All advertisers in cryptocurrency must be “pre-approved” before posting ads on Facebook. To do so, they have to disclose information about their company such as:

 

  • purpose and nature of their business
  • Facebook ad account ID
  • website domain
  • licenses and credentials
  • company name
  • business address

You can apply for your pre-approval HERE

 

 

 

 

 

 

Facebook, basically, performs due diligence on advertisers on behalf of its users, which is a good thing for cryptocurrency. Done right, this might actually boost investor confidence. With stricter regulation in place, Facebook hopes to open more opportunities which could further mass adoption for cryptocurrency, and significantly increase ad revenue to the company.

Meanwhile, cryptocurrency and ICO scams might have a hard time after the update, but that doesn’t necessarily mean Facebook won’t have any of those. In fact several cryptocurrency and ICO scams were still able to get through, ironically, even after the ban on cryptocurrency ads.

 

What Changed Their Mind?

Facebook wasn’t so clear about the reason for partially lifting the ban on crypto-related ads. People have their own views and offer some explanation as to why this is the case.

Missing Out On Revenue. At times, Facebook is more worried about optics then revenue. This isn’t necessarily a bad thing but when it comes to crypto, Facebook has constantly missed the boat. This is evident when Facebook took a massive hit in market value recently. One of the main reasons for the price dip is the lack of awareness in its underlying technology; censoring out everything crypto-related from their platform could only serve to aggravate the situation. By encouraging users to learn more about the cryptocurrency through ads and meaningful social interaction, they might as well rack up huge profits along the way.

Facebook’s Launching Its Exploratory Blockchain Group. For a tech company this huge, it’s not difficult to imagine Facebook having its own native currency in the near future. Their announcement about the launching of an exploratory blockchain group has led to some rumours about their future involvement in the cryptocurrency space. If true, then this could mean adoption on a massive scale with its two billion plus users worldwide.

 

Conclusion

Facebook’s decision to lift the ban on crypto-related ads is a statement on cryptocurrency’s future utility as a store of value, or even as a medium of exchange. There’s no denying that cryptocurrency and blockchain technology has become a major force in shaping our current financial system. They might, as well, be a part of it instead of closing doors on an opportunity which could probably give them a decisive edge along the way.

If you’d like to know more about cryptocurrency, blockchain and minning, you can pick up the Living Book HERE

What’s Next? Pushing the Boundaries of Blockchain Technology

Cryptocurrency could be running on a “different” blockchain, far better than its predecessors. Ethereum, became the first to have a “programmable” blockchain which made the currency in a class of its own. Today, we are entering into a new era of blockchain technology which promises scalability, interoperability, and sustainability with a first-of-its-kind third generation decentralized currency, Cardano.

We’ll explore the possibilities as well as the challenges in this new development in blockchain technology – what can it do to solve the prevailing issue of scalability and how far can it push the boundaries.

 

Blockchain Scaling and Its Challenges

Blockchain redefined the meaning of currency as a “trust-less” and “decentralized” medium of exchange allowing people to exchange value on a peer-to-peer network without a third party. It also solved the problem of double spending and fraud when dealing with digital assets in a virtual space with the combined strength of cryptographic functions and distributed consensus. But having such a high level of security also comes at the expense of speed and computing power.

Blockchain is difficult to scale because the exponential growth of the ever-increasing size, the necessary bandwidth to update all the ledgers across the network, and the proof of work algorithm which is self-limiting in terms of the number of transactions it can accommodate at a given time.

Some of the proposed solutions are, to take mining out of the picture, and use an alternative method of confirmation such as proof of stake and consensus protocol. Unfortunately, any attempt to improve scalability which takes mining and proof of work out of the way also tends to become convoluted and unsecure. There seems there is no way to create a blockchain that is both scalable, secure, and decentralized without losing some of its properties, one way or the other, or, writing a blockchain protocol from the ground up using an entirely different programming language.

Tinkering with the block size could only worsen the situation as bigger blocks would increase the blockchain size exponentially, thus consuming more bandwith and slowing down the network even more. The Bitcoin Cash hard fork of August 2017 attempts to solve Bitcoin’s scalability problem by following this route. However, it is doubtful that such measure could sustain the impact of mass adoption.

Some developers are now taking a different approach in their efforts to make a scalable, interoperable (communicates with other blockchains), and sustainable blockchain.

 

Making Blockchain a Lot “Smarter”

The simplicity of Bitcoin’s algorithm proved to be its greatest strength in terms of security. It is less prone to have errors and is more secure compared to other complex systems. Consequently, this would also mean less room for innovation within the blockchain itself (scripting used in Bitcoin is not “Turing-complete”). Moreover, developers couldn’t make drastic changes to the code without causing a fork in the blockchain. In such a case, the best scalability solution is to have a second layer for micro-transactions which “clears” each time these bundled transactions are broadcasted as one to the first layer, i.e. the blockchain. This is the idea behind Lightning Network.

However, to make this work, it should remain “trust-less,” secure, and shouldn’t involve a third party by adding a set of rules on top of the Bitcoin network to ensure that every transaction between two parties is settled upon meeting the conditions, or they can be rolled back if one of them refused to cooperate. Some of these rules include opening and pre-funding off-chain payment channels (or side-chains), “time-locks,” and having a “refund addresses” in case it fails to execute the agreement.

Ethereum accomplished the task with the idea of a “smart contract” between two or more people. After mining, the contract comes into force and becomes an immutable part of the blockchain. It uses a proprietary programming language (Solidity) which is more flexible than the script used by Bitcoin, and is primarily used for ICOs to fund projects and issue tokens to contributors. Some developers can make some interesting use of smart contracts such as the popular online blockchain game, Cryptokitties, where people can buy, sell, or breed virtual kittens on the Ethereum blockchain for profit.

Ethereum is regarded by developers as the second generation of blockchain technology for making such remarkable achievement. Blockchain technology is no longer just a method of making secure payments and storing value like Bitcoin, but also a more secure way of creating immutable, automated contracts without requiring a mediator in a physical sense. This opens up a world of possibilities for blockchain as a versatile platform for business and everyday use.

 

 

The Third Generation of Blockchain Technology

Cardano is considered by some as the third generation of blockchain technology for several reasons. First of all, it has a blockchain built with scalability in mind and uses a programming language known only to a few developers (Haskell and Plutus). Unlike the programming languages used in second generation blockchain which goes through a number loops and procedures one string at a time, it deals with the process of creating smart contracts and verification using a functional language which is more efficient. In other words, instead of commands, it uses mathematical formulas, i.e. functions.

An Ethereum smart contract, for instance, can go through a hundred iterations and procedures before coming up with a single output. This results in higher computational cost and could easily overload the network without some sort of regulatory mechanism that limits the number of loops or strings on a given contract. Ethereum came up with the idea of “gas”, which is the equivalent of mining fees for Bitcoin. This way, users cannot arbitrarily overload the network with excessive number of iterations. However, like Bitcoin, it also brings up the issue of scalability, computational cost, and sustainability

Cardano seeks to address this problem by revising the way blockchains should work. However, nothing is set in stone as of the moment and we couldn’t know for certain whether such proposal will have enough support from developers and the cryptocurrency community. Haskell and Plutus programming language is not so popular but can be extremely useful when applied to blockchains because it offers more flexibility.

There’s also a learning curve, should developers choose to support Cardano’s vision of a scalable blockchain, and it would have to compete with the developers’ attention who are fully engrossed in perfecting Lightning Network for Bitcoin, and the proof of stake scalability solution for Ethereum. One possible scenario is that all three of them will come to fruition about the same time, and by then we would have three or more fully scalable currencies which use different methods in achieving the same goal. Or, we may come up with just one solution that would annihilate other currencies and become the gold standard of future blockchain-based currencies. Could it be Cardano, Ethereum’s updated proof of stake version, or Bitcoin running on Lightning Network? The world watches as the story continues to unfold.

Interested in mining? Learn the basics of cryptocurrency mining at CryptEdu.com or start  hassle-free cloud mining at Cryptmin.com today.

Should Governments Regulate Cryptocurrencies?

Cryptocurrencies exploded on the scene in 2010 and ever since then people haven’t known what quite to make of this new way of exchanging goods and services – one that, in the future, may take over fiat currency. Governments are having an even tougher time trying to regulate cryptocurrencies to ensure they don’t get abused by criminal organizations.

But probably more important to most central governments is their own financial interests in having a strong fiat currency. In fact, the greatest fear among regulators is not whether cryptocurrencies can be used for making secure transactions or if it has real value, but on people putting their wealth in places where governments have no access or control over. If this happens, fiat currencies will lose value or utility over time as more and more people trade cash for cryptocurrencies, thereby removing its grip on the economy and on people’s lives.

 

Gateways for Cryptocurrencies 

Cryptocurrencies and decentralized blockchain ledgers have very little need for regulations by themselves. Nor do they need any government regulation or human intervention to function properly and securely. Decentralized blockchain ledgers are, in fact, in many ways more secure than any centralized bank or financial institution.

The main purpose of regulations, as viewed by the governments, seems to gravitate on the government’s role as custodians of fiat currencies, making sure nothing gets past online wallets, brokers, and exchanges without proper authorization and identification, which is in keeping with statutory laws preventing unlawful use of fiat currency (FinCEN, AML, CFT, KYC etc.).

Some countries implement even more stringent rules against cryptocurrencies, from banning the creation of new currencies through ICOs, to the outright prohibition of cryptocurrency mining. However, many of these restrictions and prohibitions achieved nothing except encourage more people to dodge regulations by going deeper underground.

These factors make legislation for cryptocurrencies a tough balancing act, since it has to serve its purpose of protecting the people against the unlawful use of money without making it too prohibitive as to encourage clandestine exchanges, creation, and distribution of cryptocurrencies.

 

Gateway #1: Online Wallets and Exchanges

Governments, banks, and financial institutions came in to “regulate” this seemingly uncontrollable trading activity which involved using government-backed fiat currencies. In order for exchanges to operate unimpeded, they need to implement strict identification and verification procedures before granting certain privileges to subscribers such as increasing buying and trading limits and the ability to link their bank and/or credit card accounts to their wallet accounts.

Coinbase, Kraken, and Poloniex are well-known examples of online wallets and exchanges that implement KYC and other client verification procedures.

 

Gateway#2: Initial Coin Offerings (ICOs)

Investors and venture capitalists (VCs) saw the high stakes of creating tokens using blockchain technology. All that stands between them and making a fortune is finding and rallying the support from people and tech communities through the sale of equities in exchange for privileges as pioneers and early adopters of their newly created coin. In a span of nine years, there are over a thousand altcoins that have been created – and counting. Ethereum project is one of the few Initial Coin Offering (basically the same as a IPO) whose altcoin turned out to be a strong currency in the market.

ICOs has been a controversial topic in the cryptocurrency sphere. From the viewpoint of regulators, they saw the need to impose regulations for such investments because they place a lot of risk on people, especially with cryptocurrency’s volatility, unpredictability, and ICO’s susceptibility to scams. China and South Korea went as far as banning ICOs altogether, and other countries threatened to follow suit if the benefits fail to justify the risks, or if scams involving ICOs spins out of control. Of course, banning them outright is foolhardy, but these countries do need a better system of regulating them just like any other IPO.

 

Gateway #3: Cryptocurrency Mining

Miners are one of the strong pillars that upholds the integrity and security of cryptocurrency networks.

There are some mining regulations in most countries, while in a few places mining is explicitly prohibited. Regulations can be beneficial for several reasons. Some mining pools don’t generate enough profit to be considered sustainable for business while shady cloud mining services exist as actually Ponzi schemes. In some countries, the high cost of electricity is prohibitive enough to discourage people from mining.

For cloud mining companies, most of the burden comes from excessive regulations pertaining Money Service Business (MSB) or Money Transmitter Business (MTB) which must be complied with to legally receive payments via credit cards or bank transfers, and send payouts to their subscribers. Often the best recourse for these cloud mining companies is to move their businesses in countries which are more receptive to mining.

 

Limits of Government Regulations

There are plenty of ways violators can dodge restrictions, and fixing all the loopholes meant shutting down the entire network (or the Internet) or reverting to a centralized form of currency.

Whether or not these regulations could prevent unlawful use of cryptocurrencies is beside the point since many countries are still inconclusive about the effectiveness of anti-money laundering laws in preventing organized crimes, terrorism, and corruption.

Instead, governments should be focusing more on enforcing laws and tracking down wrongdoers without putting undue restrictions on every citizen whose lives depend on their ability to use fiat or cryptocurrencies.

People now have a choice. Whether or not cryptocurrencies will coexist as a better alternative to fiat currency or replace it altogether is something which people will have to decide for themselves.

 

Interested in mining? Learn the basics of cryptocurrency mining at CryptEdu.com or start  hassle-free cloud mining at Cryptmin.com today.