In the past few years, one of the biggest topics in the cryptocurrency industry has been Ethereum’s switch from proof-of-work to proof-of-stake. After years of being postponed, the switch between consensus methods aka “The Merge”, will finally be taking place in September 2022. This blog post sums up everything you need to know.

Ethereum Mining is Over

Proof-of-work and proof-of-stake represent two different methods of securing a cryptocurrency network. As consensus mechanisms they ensure the security and processing of transactions in a digital network, but they differ in their approach. The developers of Ethereum decided that their ecosystem will no longer use the built-in security mechanism called proof-of-work. Instead they would switch to a system called proof-of-stake. Proof-of-stake does not use any mining hardware to secure the network and process transactions, and as a result, miners become obsolete after the Merge.

Proof-of-work (POW)

Proof-of-work (also referred to as “mining”) is the mechanism that keeps cryptocurrencies running. Miners run calculations on their machines to secure the network and its transactions, which costs money. Securing the network turns into “work” because of the significant effort miners have to put into it. The more machines and effort miners put into mining, the less likely they want to harm the network, which makes the network more secure. Miners are incentivized by getting rewards from the network in the form of newly minted coins. 

Proof-of-stake (POS)

In proof-of-stake, there are validators instead of miners. Validators have to use their coins as stake via a smart contract. If they acted  dishonestly, they would lose the staked collateral.  According to ethereum.org, POS is more complex, but it has better energy efficiency, lower barrier to entry, and lower risk of centralization.

When this all happens

The exact date and time of the Merge is hard to tell in advance. The developers decided it would take effect at a specific block height – when the Ethereum blocks reach a certain number. As the difficulty and the rate of block issuance are both changing variables, the exact time can not be predicted. We only know it will fall between 15th and the 17th September. 

What you need to know if you have been mining Ethereum with us

We will act in accordance with our Terms of Service §3.6 & §3.7:  : 

Your Hashpower remains active

“…the Customer accepts such risk and shall allocate Customer’s hash rate to other available blockchains and mining processes that use proof-of-work methodologies using the given algorithm for this Agreement.”

This means we will keep your hashrate running, and dedicate it to the next best thing. It is not yet clear which coin this is going to be, we will seek out the most suitable coin to mine after the merge. As your hashpower is mining algorithm specific, it will be a coin that uses the Dagger Hashimoto algorithm.

Expect some volatile days

We are switching your hashrate to a new coin based on what will happen on the market. It still has to be seen which chain emerges as the winner, considering hashrate, security, and feasibility, but you can be sure that we will pick the best one to mine. For a couple of days around the merge, we expect market and hashrate volatility to be high, so your mining outputs will likely need a few days to resume. Thank you in advance for your patience!

Pending ETH outputs will be sent out

If you have active ETH mining contracts, your remaining Ethereum you have mined will be transferred to your wallet. So if you see any ETH left on your balance sheet, it’s going to be sent to you as soon as possible. We will keep mining ETH until the last moment, meaning the transfer will happen after the Merge.

We will ask you to update your wallet address!

Once the market cools down and we pick the best coin to mine, you will need to add a new wallet address to your dashboard. As you start mining and receiving a completely new coin, we can only send your outputs to a wallet address compatible with that coin. You will be notified in time once your action is required. 

For now, you don’t have to do anything, we are taking care of the smooth transition.

And don’t forget! We are sold out, but there are many Genesis Mining impersonators claiming we are selling hashpower. Do not fall for them! Do not send them any money or it will be lost. The only way you can purchase hashpower is via our official website. But as a reminder: we are sold out!

Yours,

The Genesis Mining Team

Today we proudly serve over 2,000,000 customers, employ hundreds of people, and manage over a dozen large-scale data centers across our three core divisions — hosted mining which makes up 20% of our business, farm management for institutional clients, and our self-mining facilities, the biggest part of the business.

While these numbers are validating, our team is driven by far more than revenue metrics and customer growth. We are driven by our strong belief that the need for decentralization has never been greater than it is today and that blockchain has the power to solve many of the problems caused by centralization.

Over the past few years, we’ve seen organizations of all sizes announce initiatives that promote corporate social responsibility and aim to make the world a better place. Seeing these initiatives inspired us to begin exploring different opportunities that would allow us to give back. 

Today, we’re excited to announce Genesis Mining’s new philanthropic arm: Hash Power For Science.  

What is Hash Power For Science?

The process of crypto mining requires a tremendous amount of computing power and energy. Hash Power For Science will seek out ways to leverage our computing infrastructure and the excess energy that our facilities generate to support scientific research and initiatives that we believe could impact the world in a positive way. 

There are many different possibilities here but one of the most exciting use cases we are exploring is the ability to use our computing network to provide researchers with limited resources access to large-scale computing power.

Many talented scientists and research groups today are working on important discoveries yet find their progress slowed and limited by a lack of capital required to pay for the large-scale computing they need.

This idea of “volunteer computing” has been around for years and many organizations have made great strides by encouraging individuals to donate their own excess computing power. 

But to truly have an impact, it will take much more than a few thousand personal computers and with the scale of our operations, we view it as a responsibility to do what we can to enable and support research that aims to make the world a better place. 

If you’re part of a research group or organization that’s researching and developing ideas that could change the world yet are limited by large-scale computing access, we’d love to hear from you. Please contact press@genesis-mining.com and we can discuss if there is a way for us to support your research. 

The second potential use case we are exploring is a private-public partnership that’s been in development for well over a year now. The project’s goal is to build a system capable of recycling excess energy waste from crypto mining facilities into sustainable heat and energy to power greenhouses.

The first pilot project is already in the works and more details will be announced in the upcoming weeks.  

How can we work together?

As the industry leader in institutional crypto mining, we view it as our moral and ethical responsibility to push the industry forward and proactively look for ways to support research and causes that we believe will make the world a better place. 

While there are many clear use cases for how our computing power can be leveraged, we’re open to hearing from any and all researchers, governments, and organizations who could benefit from what we have and would like to explore partnering together in ways that will move the world forward.  

Please send information about your project and how you think we can potentially support you to press@genesis-mining.com.

But despite the pendulum swings on policy around Bitcoin, China continues to be the global leader in Bitcoin mining. With over 65% of market share, China is also poised to become not only a leader, but a controller of Bitcoin mining as well.

Before the pandemic, we’d conducted a survey about the State of Crypto Mining to get a sense of how much Bitcoin owners knew about Bitcoin mining, how they felt about the future of Bitcoin pricing, and how much they knew about China’s place in the Bitcoin market. Read on to learn more about Chinese mining and what it means for the future of Bitcoin. 

What is Bitcoin mining?

The process for mining Bitcoin is fundamentally mathematical. Bitcoin miners solve complex calculations in order to “win” the right to add a block of transactions to the blockchain. In return, the miner receives newly minted Bitcoin as their reward, and any transaction fees that may be present as well. Anyone with the right hardware can be a miner, and individual miners can set up rigs in their home. Other individual miners can pool their resources, which gives them a higher hash rate and better chance at mining a block. Bigger, commercial-grade companies are getting involved as well, with hundreds or thousands of rigs, and massive computing power. Bitcoin works because of its decentralization, with miners spread across the world.

How much of the Bitcoin network do Chinese companies control?

The Bitcoin ecosystem itself uses 73.12 terawatt hours (TWh) annually. China produces about 65% of global hash rate, or the energy used to mine Bitcoin blocks. Mining operations are spread across individual miners and large-scale commercial operations. China also has a number of mining pools, where individual miners can pool their resources with bigger mining companies in order to increase their hash rate.

Why are there so many miners in China? 

The biggest reason there are so many miners in China is because of the low lead times and cheaper materials and labor available. Because hashing requires a massive amount of electrical power, it makes sense to locate mining companies in areas with low-cost resources. But while regions of the country like Sichuan use abundant hydroelectricity, much of the energy comes from coal. Over three-quarters of electricity in China is produced by coal-burning plants, which is more expensive than hydro or wind power. Unfortunately, this means that new Bitcoin are being mined at the expense of unsustainable energy solutions. Philip Salter, Head of Operations at Genesis Mining, covers this topic in more detail in his short videos: check this one out!

What are the risks of Chinese companies contributing the majority of the computing power to Bitcoin’s network?

Bitcoin was built on the idea of decentralization, in that it would be a peer-to-peer currency without the intermediation of a third party (like a bank). Bitcoin mining is also available to anyone with the right hardware, and transaction verification is based on network consensus. By having mining power in the hands of one country, there’s a risk of undercutting the currency entirely by centralizing it to a majority controller. The Bitcoin community talks about a 51% Attack, where anyone with a majority control of the hash rate could change transactions, or affect the blockchain. Having China produce more than the majority of the world’s mining may prove that threat. Especially after the pandemic the world is now actively considering the role of China in all areas of life.

What’s the Chinese government’s view on Bitcoin and Bitcoin mining?

As mentioned above, the Chinese government has taken a firm stance on Bitcoin usage, yet hasn’t on Bitcoin mining. Financial institutions were prohibited from using Bitcoin in 2013, and in 2017 cryptocurrency exchanges and initial coin offerings were banned. While Bitcoin mining was allowed to continue, pressure began in 2018 to shut down the mining industry, with mining included on a list of 450 “wasteful” industries slated for elimination. But in October 2019, China’s president announced a massive investment in blockchain technology, the core of Bitcoin and other cryptocurrencies. By November, crypto mining was removed from the list of wasteful industries. China is known for developing their own digital currency “Yuan”, which is currently tested in Shenzhen, Chengdu, Suzhou and Xiongan. As of June 2020, laws could have already been drafted to outline the future of a new form of the Chinese Yuan.

China certainly has the corner on the Bitcoin mining market, and while it seems that China’s new commitment to blockchain technology will allow the industry to flourish, it’s yet to be seen what the future of mining in China will look like. Still, the fact that China produces over half of the world’s hashing power may, in the long run, be a threat to Bitcoin’s foundation of decentralization.

What’s interesting is that the Corona crisis had a very mild impact on the mining industry. Production of mining equipment was delayed due to the virus, but general mining activities continued as usual. Still, for many countries COVID was a reminder that some of their industries are too dependent on China. Some countries already took steps towards relocation, and perhaps miners will take note too. 

At Genesis Mining, we were focusing on expanding in several countries outside of China already before the pandemic hit. Because regardless of any virus, the only sustainable strategy for miners is to prefer locations with cheap, green energy, and crypto-friendly leaders. 

Download our full report here!

But there is one way in which system could be disrupted, and it’s with a 51% Attack.

We recently conducted a survey about the State of Crypto Mining to get a sense of how much Bitcoin owners knew about Bitcoin mining, how they felt about the future of Bitcoin pricing, and how much they knew about the threat of a 51% Attack. Read on to learn more about what a 51% Attack is, and how it could affect the stability of Bitcoin. 

What is a 51% Attack?

It all comes down to hashing power. Hashing power, or hash rate, is the energy used to drive the mathematical calculations miners employ to create blocks in the blockchain, which then results in a reward of Bitcoin for the trouble of validating the transactions in that block. Typically, hashing rate is distributed across the network.

A 51% Attack, or a majority attack, is when one entity controls more than 50% of the hashing power used to mine Bitcoin and could use that majority control to cause a disruption to the network. This entity, or attacker, would have the ability to censor transactions. They could create their own secret blockchain, and use that secret blockchain to disrupt network consensus around transactions by tricking the network into believing transactions never happened. They could also prevent miners from mining by causing long pauses between block creation.

What is double spending?

Once an attacker is in control of 51% of the hashing power, they can double spend their coins, or buy whatever they want, and then cancel the transfer. For example, if the attacker decides to buy a car, they would transfer their Bitcoins as payment, and drive off with their new purchase. But because they have a monopoly on the hashing power, they could either cancel the transaction, or create a false blockchain void of the transaction, and the network would cancel the first transaction on the true blockchain based on the false blockchain. Either way, the attacker drives off with their car and their coins.

Are there any limitations to the attacker’s power?

Even if an entity was in control of 51% of the hashing power, because of the permanent nature of the blockchain, there are limitations to the damage they can do. For instance, they wouldn’t be able go back and reverse or change transactions that have already been confirmed. They also couldn’t change the Bitcoin reward on block creation, steal coins from other parties, or even create new coins.

How can a 51% Attack be prevented?

The easiest way to prevent a 51% attack is by keeping the hashing power decentralized across miners (and anyone with the right hardware can be a miner). Even though bigger mining companies with thousands or even tens of thousands of rigs are using their scale to mine, and even though individuals miners are pooling their resources, the Bitcoin blockchain is still massively decentralized. One of the foundations of Bitcoin is its democratic nature, and block creation is based on consensus. As long as the community keeps aware of where its hashing power is going, attacks can be prevented.

Ultimately, though, it comes down to money and scale. Because hashing takes a massive amount of energy, a 51% Attack would cost a lot of money to pull off (think millions of dollars). Gains would be larger by simply using that hashing power to legitimately mine Bitcoin, rather than trying to undercut the system.

How likely is a 51% Attack?

It’s low, simply because of the inherent decentralization of mining, and the sheer magnitude of money and energy it would take to pull it off. Even if an attacker suddenly claimed 51% of the hash rate, the network has a series of fail-safes in place, including recoding the protocol to stop the attack. Additionally, there are so many eyes on the public blockchain that any malicious activity would be noticed immediately.

Keep in mind that while Bitcoin is very secure (as well as other stable, older blockchains like Ethereum), newer altcoins could be in danger of a 51% Attack.

Bitcoin is so well-established at this point that a 51% Attack would be nearly impossible to achieve, and because of the fail-safes in place, would be hard to sustain for very long. As long as Bitcoin adheres to its philosophy of decentralization and community consensus, power can and will remain in the hands of many.

Download our full report here!

It was the year everyone needed to just breathe. To collect some more energy, to actually implement those innovations the whole industry was talking about in 2016-17. In 2019, there was no bull run, but as a silver lining, there was also no pressure caused by an influx of millions of newbies. 

This was the year the industry has spent just quietly work. To pave the way for all the good stuff that is yet to come. Will it be 2020 when the masses rediscover Bitcoin? Or 2021? Who knows. But until then, and even after that, there is much to do!

Here is what we have done this year (minus the secret projects we can’t talk about yet):

• GENESIS MINING IS FEATURED ON 60 MINUTES, THE MOST POPULAR NEWS SHOW IN THE USA, WITH MILLIONS OF VIEWERS. This was a big step for the whole industry, being featured in a prime-time mainstream show, and a giant leap for our company. 
• We showed new clips from some secret facilities. We wish we could share more! 
• The two well-known faces of our company, Marco and Phil started to get published in various renowned media, such as Hackernoon, with their own opinion pieces. Have you missed these? Check out our blog, or visit Hackernoon and search for “Marco Streng” and “Philip Salter”. 
• We released a few cute and hopefully funny animations with Jimmy, our mascot. The goal with this was to explain to friends and family in an easy way, what this whole crypto fun is about. You can find it on our fabulous instagram account as well. Should we do more of these? 
• We conducted research about “How well Americans Understand Money” and it got quoted in numerous publications. The findings are not just interesting, but important too. Average people know too little about how the financial system works! Here is a bunch of articles with the findings, should you wish to be baffled.

And you are still wondering about those secret projects we mentioned earlier. Well, those will reach full bloom next year. All the (somewhat) quiet work that we have done this year, was to ensure our industry reaches the next level. As the leading mining company, we have a great responsibility to do our part. To research, to build, to transform. 

And these are not just projects involving Genesis Mining. We are part of the Genesis Group, and making mining accessible to everyone is only one piece of the Group’s vision. There’s a whole lot more coming next year. Mark our words! We can’t wait.

Yet we still see misconceptions about the state of the gold standard. For instance, 29% of respondents in our recent study How Well Do Americans Know Money? 2019 believes that the U.S. dollar is still backed by gold. The public deserves some conclusive answers about the state of the gold standard, how it came to be, why it was valuable, and why we ultimately did away with it. Lucky for you, we have those answers right here.
 

What is the gold standard?

The gold standard is a measure of value for a nation’s currency that is based upon the amount of gold that nation holds in its reserves. The idea becomes more tangible when presented as an example: if Tim or Jane holds fifty paper dollars from any nation, they should be able to swap those dollars out for a certain amount of gold based on a defined exchange rate. That’s the idea, at least.
 

The amount of gold that one would receive in exchange for their dollar is often referred to as the “par value”. Whether you were to be exchanging a franc, pound, euro, or dollar for gold, the par value would determine how much gold you’d receive in return.
 

So, the concept of a gold standard isn’t too complicated, at least on the surface level. What is less clear is how the gold standard came to be, and how most of the world eventually broke from the gold standard as a tangible measure of value.
 

What is the history of the gold standard?

The Greek historian Herodotus wrote of what we believe to be the earliest use of gold as currency. He pointed to the use of gold coins by the Lydians, who resided in the region that is modern-day Turkey, during the fifth century. These coins arguably represent the earliest use of a gold standard, albeit one that was more directly tied to gold (the currency itself was at least partially comprised of gold) than the gold standard Americans and others would come to know centuries later.
 

We can trace the roots of the American gold standard to the discovery of gold in California in January 1848. This discovery precipitated the Gold Rush, and America’s newfound abundance of the valuable precious metal would lead President McKinley to sign the Gold Standard Act in March of 1900.
 
Source: americanbullion.com

The Gold Standard Act set the price of gold at $20.67 per ounce, and the value of each dollar at 25.8 grains of gold. This put an end to long-held debates over whether gold or silver was preferable as a store of value — fans of silver would simply have to deal with this new reality. It would turn out that they wouldn’t have to deal with it forever, though.
 

As worsening economic conditions leading up to the Great Depression caused the stock market crash of 1929 and banks to increasingly fail, Americans began to hoard gold. One economic tool for stimulating the economy — increasing the money supply — became impossible, as the amount of money was directly tied to the amount of gold in government reserves, and citizens were wary of selling their gold to the government or anybody else.
 
Credit: Bettmann Archive/Getty Images

This led the administration of Franklin D. Roosevelt to follow England’s lead, signing the Gold Reserve Act in 1934. This made it illegal for American citizens to own most forms of gold, in doing so requiring them to turn their gold coins over to the Treasury at a set price of $20.67 per ounce.
 

This seemingly helped stimulate the economy, but many have argued its long-term effects remain primarily detrimental. The final nail in the American gold standard’s coffin came in 1971, when President Richard Nixon ended the ability to exchange dollars for a fixed amount of gold, and in doing so upended the fixed nature of international currency. Prior to 1971, the Bretton Woods System tied most international currencies to the dollar, which was tied directly to gold.
 

This was no longer the case post-1971, and while the cessation of the gold standard initially halted inflation and a run on gold, it would have far-reaching effects, many of them negative.
 

What are the advantages of the gold standard?

World War I served as an early and a prime example of the value of tying paper currency’s value to something of tangible value, in this case gold. In the face of massive wartime costs, several European nations abandoned the gold standard, allowing those nations to print as much money as necessary to pay the high cost of war.
 

However, this ultimately led to massive hyperinflation, as the value of paper money lessened as it saturated the marketplace and consumers (and the government) lost confidence in the real value and purchasing power of paper money. The reality of hyperinflation is common when any nation moves away from a real basis of value, such as gold, as an anchor for its paper currency.
 

Herein lies the value of the gold standard: paper money is worth a defined amount, and that paper money can be exchanged at any time for the item of real value that backs the paper currency, in this case gold. This tends to stabilize the real value of money as well as consumers’ confidence in the value of that money.
 

As we’ve seen, abandoning the gold standard can cause a funny money effect that can ultimately causes worldwide inflation and degrade the sense of true, definable value that paper money is supposed to have.
 

What are the disadvantages of the gold standard?

History illustrates that the primary disadvantage of the gold standard is the inability of a government to manipulate the money supply in tough economic times. When signs of trouble arise, the public tends to exchange their paper money for gold, preferring the item with inherent value versus paper money, which is only theoretically linked to the item of inherent value.
 

This understandable human inclination to hoard gold only exacerbates a contracting economy, and the government’s inability to purchase gold from the people in exchange for paper money only lessens the perceived value of that paper money. Put yourself in the government’s shoes: how could you allow the people to hoard all of the gold, and thus the element that imparts value on a nation’s paper money?
 

The answer: you can’t allow this, and therefore we get The Gold Standard Act of 1933 and Nixon’s outlawing of paper money’s exchangeability for gold in 1971. With these acts, America and the world kissed the gold standard goodbye, with little likelihood of a future return.
 
 

Download our Free 13 page Exclusive Report:
The Perceptions of Money & Banking in the US 2019

1. About ASIC-resistance

The great debate actually revolves around the idea of creating a protocol that can actually and absolutely be “ASIC resistant”. The main conclusion being, that there will always be a need and an approach to make a specific computation more efficient. Following this logic, ASICs are only naturally emerging when a task is worth the effort of being computed efficiently. In the cryptocurrency world we derive this from the value that a certain coin protocol provides.

Over the years, proof-of-work based cryptocurrencies saw a myriad of employed hashing algorithms and a similar amount of hardware developments trying to crack them in the most efficient way.

Most developers did not anticipate the developments of the ingenious chip design industry, and today, almost all of the top cryptocurrencies are in fact mined with ASIC hardware.

• All networks that reach a certain robust stage will attract this kind of development naturally, and it can actually be a sign of network health. (That is if the ASICs came after the network launch, not before.)
• No mining algorithm is truly ASIC resistant. There are developers out there that want to tackle the circumstance of static algorithms than can be cracked, for example ProgPoW, but nothing has been released and/or deployed into a major network as of this time.
• The list of protocols that still retained a thorough cycle of development and enough user traffic to sustain its independence after an ASIC-resistance fork, is short.

2. The great debate

As outlined by our Head of Operations in “What you need to know about GPU mining” article, and our general ”GPU vs ASIC” article, GPUs do have their applications:

“GPUs were already important technological components well before cryptocurrency was a thing, and there’s no reason for this to change. They are multipurpose tools that might be fairly called a Swiss Army Knife of computing. From smartphones to personal computers to artificial intelligence research, a GPU is a flexible jack-of-all-trades in the computing world. It just happens to excel at crypto mining as well.”

“There’s never going to be a final one-time software fix to kill all ASICs — it’s a Fata Morgana, the last little straw held on tightly by the highly desperate GPU miner community — including, for a long time, myself. All GPUs, by their very technical definition are an assembly of ASICs themselves. It’s always going to be a cat-and-mouse game. Like it has always been in the soft-& hardware industry and for that matter, in virtually every other aspect of life (think of bacteria and anti bacteria medication).”

@MoneroCrusher
Source

3. Development observations

Bitcoin is now 11 years old, and with time, there are observations made about the mining industry in general:

1. The lifecycle of ASICs is increasing, as major jumps in efficiency are less likely to occur due to Moore’s law
2. The ASIC market is becoming increasingly competitive and balanced as new hardware producers enter the market
3. With this there is a decrease in opportunistic pricing and less chance for monopolies to establish

Among others, the BetterHash protocol and Stratum v2 by braiins promise great advancement to decentralize a protocol on the pool level. 

Mining pool hashpower distribution, versus Slush Pool’s miner distribution projected onto every pool.
Source

4. About Decentralization

• Large-scale miners make huge investments by purchasing and/or partnering with chip designers. Extracting a profit as a business goes directly against the incentive of 51% attacking a network, as businesses would ruin their own income stream, and/or start mining against themselves.
• In theory, a continual hashing algorithm update process keeps a network ASIC resistant. In practice, it’s usually a centralized decision being done in the dark (by the protocol developers) that breaks previous network infrastructure (nodes) and creates a high maintenance window for adoption.
• A complete focus on CPU and GPU purposed hashing algorithms also opens up other vectors of attack and extortion, such as the possibility of arising Botnets that infest entire networks, industries as well as individuals. Note: Efficient mining requires a lot of memory, which can be difficult to hide in infected computers and disqualifies many low-end machines such as IoT devices.
• Making an algorithm CPU heavy will not necessarily incentivise people to mine it with their home computers, as profitability will still not be enough to hold it up due to household electricity costs, except people who are willing to mine unprofitable for the sake of the network.

“… Monero is like this. Having started with a typical resistant algorithm, Bitmain ended up developing specialized hardware for it anyway, so “they” decided to spontaneously fork and change the algorithm. This is of course, fine, but the most important distinction here is this is not decentralized, at all, whatsoever, no matter what anyone tries to tell you … Furthermore, this can’t go on forever. The network can’t keep shutting down old nodes just to hard-fork to a new algorithm. You need a robust and immutable set of code moving forward so infrastructure can be built on top of the network that won’t get disabled by some spontaneous hard-fork out of desperation.”

@StopAndDecrypt
Source

5. The middle ground

Let’s agree that …

• Both ASIC and GPU producers have temporary monopolies on mining, they just impact different cryptocurrency life cycles.
• Large miners always outcompete small miners with Economies-of-scale
• ASICs are probably inevitable
  A robustly growing network always profits from specialisation and automation

Let’s try to …

• Target a low entry barrier for ASIC producers to encourage competition and balance the scales.
• Provide long term stability for the mining ecosystem to mature quickly.
• Not stifle business adoption of a cryptocurrency protocol by making it hard to employ in the long-term

“… The strategy of hard-forking ASICs off of a network is going to lose potency the more it happens, because chip designers do have the ability to make chips that are flexible, anywhere from slightly flexible to highly flexible, with each piece of flexibility costing only a bit of performance. The Monero devs have committed to keeping the same general structure for the PoW algorithm, and because of that commitment we believe that you could make a Monero miner capable of surviving hard forks with less than a 5x hit to performance.

@SiaTech
Source

Want to know more about the future of crypto mining? Read the article of our CEO, Marco Streng.

You can read about the theory and practice of ASIC-resistance in the second half of the article. First however, we want to give our customers an overview.

The bad news:

1. With this change, our deployed GPU infrastructure for Monero mining is running at a substantial disadvantage when running RandomX since the algorithm was designed to be most efficient on CPUs. Thus, it will decrease the mining performance considerably. As with any fork, the actual consequences on network hashrate and mining rewards remain to be seen, as no one can predict how the global network hashrate will behave (ASICs and GPUs dropping out while CPUs potentially joining the network).
2. In the last fork (In May 2018) we offered our users a complete hashpower transfer to GPU mining hardware and bore all extra costs. However, as the “RandomX” fork is also weakening general GPU mining capabilities considerably, there is no business-centric argument at this point, that can convince large-scale mining operations to try and adapt to these changing protocol rules without the need of large additional investments into any mining infrastructure for this cryptocurrency. 

The good news:

1. You will continue to receive mining outputs for your hashrate (although most likely decreased) until the natural end of your mining plan (as stated in the contract terms). Almost all of our user contracts are approaching the end of the natural contract lifecycle of two years, with only a few months left to mine. We want to emphasize, that due to the fluctuation in hashrate in the network after the fork, all mining outputs will be varying until network hashrate stabilizes.
2. Users that already opted-in to an algorithm change (in May 2018) for Monero Classic are not impacted by this situation and their contracts will come to a natural end as described in the terms.
3. Auto-swapping mining outputs to Monero from a different mining algorithm will still be possible.

The aftermath:

We are forced to delist Monero mining products from our mining portfolio for the foreseeable future. Investing into Monero mining hardware, maintaining it and offering it to the market at this point is highly risky and depending on the success of the freshly employed ASIC-resistance algorithm there might be additional algorithm forks in the future.

We always were Monero fans, especially for its privacy-centric endeavors. Our conclusion however is, that as a big participant of the mining ecosystem, and especially as a business that has to run the operation and turn a profit while ensuring customer success, we cannot continue to offer Monero mining as a product any longer.

Additionally, as a global mining team that has been in the industry, from pretty much the beginning, we think it is important to give a perspective on ASIC resistance. 

If you want to learn more about the ASIC-resistance controversy, read our extended article.

Update 12/2/2019 :

• Monero has successfully upgraded its network mining algorithm and the network hashrate is increasing considerably.
• For mining outputs arriving successfully in your wallet, you will have to update the address in your settings. As of the 0.15 release, long Monero payment IDs have been phased out. You can find more information about this here.

If you’re unclear on the purpose of these regional federal reserve banks, what they do, how they function, and why they’re important (or not), we’ve got you covered. We answered some basic questions (you didn’t ask them, but we answered anyway) about the twelve federal reserve banks, and we’re hoping that those answers will clear up any uncertainty you may have.
 

What’s the history of federal reserve banks?

When the Wilson administration proposed establishing a national bank circa 1913, there was a clear upside to the proposal. A unified national banking system would, in theory, help stabilize the national economy and serve as a better framework for regulatory oversight. The central bank would also provide unprecedented liquidity between member banks and standardize reserve requirements, a key lever for manipulating the money supply. 

Source: Federal Reserve

But there was also opposition, with one concern being that a single central bank located in Washington, D.C would not adequately serve or represent the varying attitudes and demographics that existed, and still exist, across America.
 

And so the 1913 Federal Reserve Act would ultimately include a charter for twelve regional banks to serve as operating arms of the D.C.-based federal reserve. They would prove to be critical in maintaining the health of not only the domestic and global economies, but also the existence and integrity of the smaller financial institutions that makeup the American banking network.
 

What is a federal reserve bank?

Federal reserve banks are extensions of the Fed, and function according to policy set by the twelve-member Federal Open Market Committee (FOMC). The FOMC dictates the policies that we collectively dub “monetary policy”, a term that remains murky at best to most Americans. In fact, 41.2% of respondents in our recent study How Well Do Americans Understand Money? 2019 answered incorrectly when asked “who decides if and when more US dollars should be created?”.
 

The correct answer: the Fed, specifically the FOMC.
 

You should know that the FOMC is comprised a seven-member Board of Governors and also five heads of the twelve regional federal reserve banks. So, in a way, the regional federal reserve banks (through their presidents) do have an impact on monetary policy, but those banks mostly follow orders — how much money to keep in reserves, how much can be lent out, what interest rates to charge, etc.
 

How many federal reserve banks are there, and where are they located?

Excluding the real-deal Fed that resides in Washington, D.C, there are twelve Federal Reserve Districts, with each serviced by a regional federal reserve bank. The districts are skewed towards the east coast, as is reflected by the banks’ locations.

Source: fraser.stlouisfed.org

The cities with a federal reserve bank are (from West to East) San Francisco, Dallas, Kansas City, Minneapolis, St. Louis, Chicago, Atlanta, Cleveland, Richmond, Philadelphia, New York, and Boston.
 

How do federal reserve banks work?

Regional federal reserve branches serve as depositories for smaller banks. They maintain accounts for smaller financial institutions, and guarantee those deposits for future withdrawal, which is precisely the role those smaller institutions fill on behalf of their customers (us). Regional federal reserve banks also extend loans to financial institutions at a rate set by the FOMC, known as the discount rate.
 

Federal Reserve Banks As Regulators

Just to clarify: the Federal Reserve System includes the Fed in Washington, D.C., the twelve regional federal reserve banks, and smaller member banks that fall under the purview of those twelve regional banks, according to their geographic location. The twelve regional federal reserve banks serve as a ground-level regulator of the roughly 7,800 member banks that have chosen to join the Federal Reserve System.
 

Regional federal reserve banks are tasked with ensuring that member banks in their district are complying with Fed-set monetary policy and are not engaging in risky banking practices — cough subprime mortgages cough. While history has proven that oversight from regional federal reserve branches is imperfect, it is something.
 

As Service Providers for the U.S. Treasury

The regional federal reserve banks act as a sort of checking account for the U.S. Treasury by issuing and redeeming government securities. They also collect unemployment, income, and excise taxes on behalf of Uncle Sam, ultimately handing that money over to the Treasury. Regional federal reserve branches also store collateral on behalf of the federal government for dealings with private institutions and make interest payments on behalf of the U.S. government.
 

Though the twelve federal reserve branches are technically not for profit, they do increase the money supply and pad their coffers (temporarily) by issuing loans that collect interest. They can also profit from the sale of government securities and through fees on the payment services they provide, but all additional earnings are turned over to the U.S. Treasury each year.
 

As Financial Service Providers

The twelve regional banks facilitate withdrawals and deposits from the smaller federal reserve member banks in their district. They also extend member banks credit in the form of loans. The regional federal reserve banks clear approximately 18 billion checks each year as a clearinghouse for federal reserve member banks, showing just how critical they are to daily banking operations in the United States.
 

Who owns federal reserve banks?

As the main branch of the Fed, the regional federal reserve banks are technically not owned by anybody — not the Fed chairman, not the President, not you or me. They are a part of the independent network that is the federal reserve, which is designed to be above partisan influence or corruption.
 

Download our Free 13 page Exclusive Report:
The Perceptions of Money & Banking in the US 2019

Actually, you’re definitely not alone: nearly 50% of respondents in our recent study of 1,000 US consumers stated that they did not know what the federal reserve — the central bank of the United States — does.

Though the topic of central banks doesn’t arise frequently in most people’s daily conversations, these financial institutions play a critical role in America’s financial structure and, by extension, the global economy.

We’ve answered a few basic questions that should broaden your knowledge of how central banks work, how they were started, and how they impact your life.

What is a central bank?

Central banks are the kings of any national banking system, regardless of their country of origin. Their goal, above all else: to ensure the stability and long-term health of a nation’s financial systems. Heads of central banks aim to achieve this lofty goal through several tacts.

First, they typically serve as a bank to other banks, serving the same functions that your bank offers to you, only at a substantially larger scale. Banks store money with a central bank — lots of it, in most cases — withdrawing funds when their coffers are low and depositing when they are flush. A central bank may also provide smaller banks with emergency funds in times of low liquidity, such as a micro-bank run.

A central bank may also play a role in setting bank requirements, such as the percentage of deposits that a given bank must keep in its reserves. In this way, central banks can impact the money supply and implement changes in monetary policy, which usually happens in response to inflation and other economic trends.

These central banks — the federal reserve being a prime example — are designed to be independent as to avoid conflicts of political interest.

What’s the history of central banks?

Sweden is thought to have created the first central bank on record, the Riksbank, in 1668. This was the first in what would prove to be a trend of banks establishing a national banking infrastructure headed by a central bank.

We can trace the history of central banks in America back to the wake of the American Revolution. The post-Revolution United States found itself saddled with debt, and initially each state was on the hook for varying amounts of debt. The obvious problem: those states had no clear path to repayment, and even if they did, most states printed their own currency and relative value was nearly impossible to figure.

So Alexander Hamilton floated the idea of a national central bank that would take over the wartime debts of the states, create a unifying national currency, and set a clear course to solvency.

This concept led to the creation of The First Bank of the United States in 1790–1, located in Philadelphia. The bank raised $10 million by selling stock, owned partially by the federal government and private investors. Eventually, the First Bank and its successors would take on commercial functions that would serve as groundwork for our central banking system of today.

In 1816, Congress chartered the Second Bank of the United States, which would serve similar functions as the First Bank until its charter was vetoed in 1836 by President Andrew Jackson. The Second Bank would also serve as a clearinghouse for smaller banks, holding their notes in reserves and regulating those banks that were perceived to be over-issuing bank notes.

We now view these initial forays into national banking as the roots of the central banking system we know today, with the federal reserve at the top of the banking food chain in America. Central banking has also become a global phenomenon.

What do central banks do exactly?

Central banks serve as number of functions, from safeguarding the majority of a nation’s money supply to directly altering monetary policy and the supply of money in circulation. We’ve talked about how a central bank serves as the bank for smaller banks by storing their funds and facilitating deposits and withdrawals. This is far from a central bank’s only function.

In the case of a financial emergency, the central bank is often expected to bail out smaller banks, adjust interest rates to offset damaging economic trends and events, and in doing so, prevent a domino effect of bankruptcies among the smaller banks that the central bank serves.

The central bank’s oversight and manipulation of the money supply is also critical to a nation’s overall financial health. During economic slowdowns, the central bank can buy bonds and other securities in exchange for cash, putting more money into circulation in hopes of stimulating economic activity. In times where the economy is showing signs of alarming hyperactivity, a central bank can sell bonds for cash, decreasing the money supply in hopes of reaching a more sustainable economic rate of growth.

Central banks may also set interest rates among its member banks, with these rates going a long way towards determining how freely those member banks extend loans and, by extension, how much money is in circulation. The central bank typically provides basic payment services, such as providing credit and facilitating Social Security payments — two important services within an economic system.

Does every country have a central bank?

The majority of nations have a central bank of some sort, though the integrity and effectiveness of these central banks can vary greatly from nation to nation. As of 2019, only nine sovereign, internationally-recognized nations are without a central bank. Each of them has a population of less than 120,000 people. They are Kiribati, Micronesia, Isle of Man, Andorra, Marshall Islands, Monaco, Palau, Tuvalu, and Nauru.

Who owns central banks?

Central banks are intended to be independent as to avoid corruption and political influence, but this is not always the case. In Socialist and Communist nations, for example, it’s often the case that the government has direct oversight of the central bank and essentially uses it as its personal piggy bank.

But in most developed, economically healthy nations, the government does not venture beyond appointing central bank leadership. This is the case in the United States and most other developed nations without cultures of institutional corruption.

Download our Free 13 page Exclusive Report:
The Perceptions of Money & Banking in the US 2019