Bitcoin prides itself on its open-source and decentralized design. But, one of the fundamental components of the digital currency, its process for generating new bitcoins called ‘mining’, is anything but.
For instance, there is more or less only one hardware supplier: Bitmain. That’s about as centralized as the decentralized digital currency network can get, independent miners contend.
Lamenting their inability to buy mining equipment from any company other than Bitmain, as well as the paucity of avenues to procure the ASIC chips used for bitcoin mining, independent Bitcoin miners have grown increasingly frustrated. They contend the state of Bitcoin mining could be stifling innovation, leading to power consolidation in the peer-to-peer network.
“I contacted Bitfury and they placed a paywall in front of me with the amount of chips I would need to buy,” bemoans Bitcoin miner and co-founder of South Florida Distillers, Avi Aisenberg, a computer engineering graduate of Cornell, told Crypto Insider. “I’d sooner make my own chip.”
Their program has a minimum order quantity of $1 million ASICS, BitFury advises Mr. Aisenberg in an email seen by Crypto Insider.
The e-mail requests: “To proceed with your application, please can you provide more information on your current activities in the Bitcoin market.”
Mr. Aisenberg wonders why BitFury needs to know his plans, and why he can’t just buy some chips for the sake of experimentation and the digital currency he has come to love.
Minimum orders for computing chips are generally much less than $1 million, even from massive multinational firms. $250,000 worth of chips suffice for many companies, Mr. Aisenberg imparts from his own past experience.
“Since there is no competition, there is little reason for miners to release innovations in the bitcoin mining space from a game theory perspective,” says Mr. Aisenberg, who is experimenting with a process to accelerate rum aging with the heat of a bitcoin miner. “If Bitmain had warehouses full of bitcoin mining hardware, then why would [Bitmain Co-Founder] Jihan [Wu] make a faster chip? It would cost money to develop the chip. It’d cost money to replace his own miners before releasing the chip so his own mining pools could remain efficient.”
Mr. Aisenberg wonders aloud: “How is it that [Bitcoin] is not at his whim, anyway?”
The hobbyist-miner says he’s received flak for purchasing equipment from Bitmain, since many believe the Chinese firm’s business practices are borderline unethical. He says that, despite his own suspicions, they offer a reliable service.
“When I buy a miner, it comes from Bitmain,” Mr. Aisenberg explains. “It arrives reliably and I plug into Antpool and it mines for me when it is plugged into [Bitmain’s mining pool] Antpool. I’ve plugged into other pools, and it doesn’t work as well. I’ve experimented and deviated from Antpool, but always come back. They’ve been paying me more than the true block rewards for my hashing power.”
Bitmain incentivizes those who use its mining pool, Antpool, an added 3-8 percent per mined block for their hashing power. The company does the same thing with pools they’ve set up to serve specific countries, such as a 5 percent kicker on their Israeli service, ‘Connect BTC’.
For independent small-time miners like Mr. Aisenberg, Bitcoin is lacking a free market in Bitcoin’s ASIC chips, which is stifling innovation. “If one could procure $5,000 worth of hashing chips, you never know,” he says. “In open-source programming, someone makes a library, and others make use of what they have done. People do this with hardware. If chips are made available they become parts of high school science projects and something may come out of that.”
One such inefficiency is precisely the one Mr. Aisenberg is trying to solve by using excess heat from a Bitcoin miner to accelerate the aging process for his distilleries rum, ‘EthereRum.’ “Bitcoin mining produces excessive amounts of heat and the mine operators impetuously dump that heat directly into the air without considering its other uses prior to exhaust,” he says.
Perhaps, if there was room for more innovation in bitcoin mining, then this problem would have been solved by now, he suggests. He goes further: The survival of Bitcoin the way designer Satoshi Nakamoto envisaged it is on the line.
“If there is any chance for Bitcoin’s Proof of Work to remain as initially specified, someone has to release the chips as a loose component,” Mr. Aisenberg concludes.
Image from Wikimedia Commons.