Why hashrate decentralization matters (a lot)

It’s time to leave the notion of burning electricity to create coins behind

Bitcoin mining is becoming one of the most popular —and controversial— industrial activities worldwide. However, many fail to see the true structural value and potential hashrate has on a global scale.

The evolution of hashrate

Years ago, few people knew about Bitcoin. Many considered hashpower to be more of a hobby. Crypto and technology enthusiasts ran nodes for fun or personal interests, and the coins they earned were worth very little.

As Bitcoin grew along with its price, more people started seeing mining as a viable source of income. Some, even as a full-time job.

Miners started looking into new ways to grow their hashrate. They built specialized computers for the sole purpose of mining cryptocurrency.

The astronomical levels of calculations produced by those machines, along with the optimized electricity consumption, set the stage for the birth of a complex hashrate industry.

Enterprise-level mining corporations, hardware manufacturers, institutional investors, and private mining pools grew popular, and they continue to do so today.

However, we have yet to jump to the next phase of the process.

If Bitcoin and cryptocurrency are to become widely adopted, we have to leave behind the notion of hashrate as an industry or a business activity. Instead, we should see it as a critical infrastructure component of the of the global financial system of the future.

A new perspective of Bitcoin mining hashrate.
A new perspective of Bitcoin mining hashrate.

A new perspective of hashrate

Today, many consider cryptocurrency mining as simply burning energy to get coins. And although they’re not wrong, it’s a simplistic view.

As cryptocurrency adoption grows —especially those using proof-of-work consensus, like Bitcoin— , we need to switch the focus from the “money-making” component to the structural aspect of hashrate.

We believe in each and every individual’s right to financial freedom, to use the currency they prefer and however they choose to do so.

We support a financial ecosystem that is tamper-resistant from a single centralized entity or government. One where and instead is governed by its own users.

And we are certain that it is our job and responsibility to build and improve that ecosystem.

We can accomplish this by focusing on keeping the mining of Bitcoin and other proof-of-work networks secure, optimized, and decentralized through better software.

And the key to doing so relies on hashrate.

Decentralizing cryptocurrency mining

The security and decentralization of proof-of-work blockchains such as Bitcoin rely on having many different miners providing hashrate to the network. However, the trend in the last few years has been the opposite.

The top 3 mining pools control ~50% of the total Bitcoin hashrate. If we expand to the top 10, then these few groups concentrate 97% of the network’s hashrate.

Hashrate concentration by Bitcoin mining pools.
A few mining pools control the majority of Bitcoin’s hashrate.

If we take a look at the situation from a geographic perspective, we can see that crypto mining is becoming more and more centralized due to the hunt for three different factors:

  • Stable infrastructure.
  • Favorable government regulations.
  • Cheap, accessible electricity.
3 factors that drive hashrate centralization.
3 factors that drive hashrate centralization.

Although geographical concentration isn’t as worrying as control centralization, it can still lead to cumbersome situations.

We can’t force miners to give up their hashrate or sell their machines. We can’t point them to where they should base their operations either. So how can we solve the problem of centralization?

Decoupling the creation of hashpower from its control will allow it to become a tradeable interchangeable resource.

If we’re able to control hashpower that we do not create, it doesn’t matter where or who owns the devices. Someone in New Zealand could mine with hashrate produced by a miner in the United States.

A new, decentralized proof-of-work model

The way crypto mining is currently working involves two parties: miners and pool operators. In that linear dynamic, there’s only one decision-maker.

Miners “sell” their hashrate to the pool, which mines blocks and pays them a “reward” in exchange for their work. Pool operators are the ones running the miner nodes and creating blocks, while miners are only providing the hashrate.

The current model of hashrate and proof-of-work.
The current hashrate and proof-of-work mining model involves only one decision-maker.

The new model we propose enables decentralized ownership of hashrate.

Rather than selling its hashpower to a single mining pool, miners put their computing power up for sale. Multiple buyers can then purchase and point it to a mining pool of their choosing. This, in turn, creates multiple decision-makers, as each one of those buyers is acquiring control over that hashpower.

Furthermore, this ecosystem is powered by blockchain technology and smart contracts. The protocol records every transaction on a public ledger, and the terms of every trade are accessible to everyone.

These are the pillars of a completely fair and democratic marketplace. No privileges for anyone.

Lumerin enables a new model for hashrate decentralization.
A new model for hashrate decentralization and distribution.

Through this technology, we are creating the world’s first P2P, decentralized hashpower commodity marketplace. Within it, users can buy, sell, access, distribute, and manage hashpower from anywhere on the globe.

With access to a decentralized hashrate marketplace, every mining facility, institutional investor, or company can run its own mining pool. Even if they don’t own any hardware.

Closing thoughts

Hashrate has become a critical part of the infrastructure of proof-of-work blockchains. Thus, the up-and-coming global financial system that is cryptocurrency.

As such, it is crucial that we focus on further developing this infrastructure, facing the challenges that come with scaling and mass adoption.

We need a system that mitigates the risks of centralization, ensures transparency of the mining economy, and makes hashrate accessible to anyone and everyone who wants to take part in the mining process.

By making hashrate a decentralized, tradeable commodity, we’re taking the first step towards building it.

Driven by the Lumerin protocol, any company or individual will be able to buy, sell, and deliver compute power using the marketplace, thereby naturally decentralizing the control of hashpower through market dynamics.

By making hashpower a trustlessly transferrable digital commodity, the Lumerin Protocol will provide a foundation for hashpower financialization as well as services for lending, custody, OTC, and trading.

We believe that the Lumerin Protocol will help the entire crypto mining ecosystem to achieve its greatest potential in both revenue growth and scalable decentralization.