Bitcoin is the largest, longest-running, decentralized, and most secure digital currency of all time, but it is far from the first such attempt. We as a community would do well to remember that bitcoin stands on the shoulders of previous projects, spanning across decades of work. Satoshi built upon the technical underpinnings of said projects, their successes and failures, and each unique cultural ethos.
In order to discuss the incentives that miners face, we need to understand the core business models that miners deploy and the directional unit economics across the standard set of inputs. In the simplest terms, miners aim to produce bitcoin at the lowest possible cost. There are various methods of mining in existence today, each with its own costs, structures, and risks.
proposed incentive structures for the broader network participants–creating disparities in some aspects. Since each mining company has vastly different strategies, these trade-offs and nuances are company specific. To illustrate this point, consider a scenario in which a miner opts for a pool that adheres to SOC 1 and SOC 2 compliance standards, even if it charges higher fees, rather than choosing a pool with lower fees and no compliance standards.
The bitcoin mining business is operationally complex and labor intensive. But that is a natural consequence of the narrow and well defined role they have been playing since Bitcoin’s inception. Asking miners to adjudicate disputes on a sidechain, potentially many of them at once, doesn’t just add additional business complexity, it changes the fundamentally neutral role miners play in validating transactions.
An Increase in pool centralization. One could argue that currently, the most centralized aspect of mining is mining pools. While there are numerous options available, a mere two mining pools hold substantial control over the majority of the network. It’s important to highlight that the cost and time associated with switching mining pools are relatively low. Consequently, the idea that a mining pool could gain control is a risk that can be addressed in less than ten minutes.
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Mixed Strategy ETF VolumesThe daily volume (in USD) for mixed strategy ETFs (which hold both bitcoin and ether futures), including Bitwise Bitcoin and Ether Equal Weight Strategy ETF (BTOP), ProShares Bitcoin & Ether Equal Weight Strategy ETF (BETE), and ProShares Bitcoin & Ether Market Cap Weight Strategy ETF (BETH).
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