Long Live The Network
The Storm Is Here #
Today (or yesterday, depending on where you live), NiceHash got hacked. Approximately $64 million is reported to be stolen.
Today is going to be “just another day in the crypto world”. People will make a fuss about it. People will soon forget about it and move on.
I think it is essential to take a moment and reflect on the history of blockchain technologies, and cryptocurrencies in particular. I believe we are heading down a dangerous path, away from our original vision of a decentralized world. You may disagree but here is my side of the story.
Our History #
When BitCoin, the first well-known [fn: but not the first ever] cryptocurrency was created, the network was intended as a form of direct democracy, wherein each member (a computer), can get one vote represented by its computing power. In the beginning, this worked out perfectly. Most miners back end the old days were also users of the network, and the most popular, as you can guess, was the core BitCoin client.
Fast forward to almost two decades later. We now live in a world where the average person buys and sells cryptos for investment/speculation purposes. A lot of the holders of these currencies are no longer the miners. Mining is now an activity exclusive to exotic large-scale, industrial miners, who also sell a substantial portion of their newly minted coins to pay for expenses and keep the accounting books in check.
The End of a Democracy #
If you do not see anything wrong with this picture, look again. We are taking a decentralised vision and putting it back into a box. To use an analogy, if the crypto eco-system is a world, the people who use/hold them can be considered its citizens. However, due to the way most of these networks were designed, the voting power is no longer in the hand of citizens. Instead, miners are now the ones deciding the direction of the networks. They choose protocol to live and which to die. In other words, they have the cake and eat it too.
The Mining Story #
The nightmare of de-decentralisation does not end there.
Crypto mining revolves around the concept of difficulty. The network only allows a fixed number of coins or tokens (currency units) to be generated in a given amount of time. As cryptos become more valuables, more and more people get on the mining train, making it practically impossible for the average person to mine a full coin. Miners now need to band together to solve mathematical problems (i.e. mining). If the group collectively solve the problem, they would have “minted a coin”. The profit is distributed back to the members, based on the amount of computation each has performed in the last round. A mining pool is the one organising groups of miners in this operation.
Life is still not too bad for the average miner because, well, they are getting paid quite regularly (on Bitcoin network, it’s every 10 minutes). However, there is an inherent limit to simple mining pools: Each pool can only mine one particular type of cryptocurrency (i.e. an Ethereum pool cannot generate Bitcoin). Due to lowered profit margin and market fluctuation, it is too risky to wait and cash out at multiple pools. Someone comes up with a nice solution: what if instead of mining currency, just sell your computing power on a marketplace. You lose a small percentage of the profit. However, you now get instant “credits” (in the form of BitCoin, the most common crypto), which you can cash out once your earning reaches a threshold. Everyone wins!
Until less than 24 hours ago. The marketplace crashed. And you realised that you should never have trusted any entity to take care of your coins, whether it is an exchange, pool, or a power marketplace. You should keep your private key, well, private, and stop relying on MtGox to be your bank! You should learn to participate in the new world as a responsible citizen.
Unfortunately, this is easier said than done. The world today has no place for the average user to cast a vote when it’s time to decide whether to change the protocol. It is probably not worth it when the voting power (i.e. buying a GPU or an ASIC mining gear) costs you more than the amount of crypto you already own.
Hope for the future #
Recently, there have been positive movements across crypto developer communities. A few networks are now on the way to Proof of Stake model, which means that one’s voting power will be determined by the number of tokens one has, not by computing power. I am excited to see upcoming Proof of Stake implementation in Ethereum. Tezos is still going through a bloodbath, but I hope the network will survive and thrive as a model for the new world. These changes will save the earth of the ridiculous amount of electricity the mining rigs are consuming nowadays. Above all, this will mark the return of direct democracy in the crypto world.
In the meantime #
Although I am optimistic about the future, it’s not here yet. For now, I think we can at least push back on the idea of a centralised world. If you are a miner, your livelihood should not be at the mercy of a single pool provider. Travel in the direction that gives you the most choices. Keep some coins handy, because one day, they may well be your passport to the new world.
I wish you well, amigos.
P.S. In case you are not in the crypto mining scene, NiceHash was the largest marketplace of computing power for cryptocurrency mining.
Thoai Nguyen is a backend developer, a blockchain and artificial intelligence enthusiast. He is the founder of GPU Exchange, an online service that helps miners manage their mining operations.