Mining Talk

The word "mining" originated from Bitcoin. In Bitcoin, mining has three functions. But the most well-known is its reward for miners. It is precisely because of this partial understanding and intentional or unintentional misleading that the concept of "mining" has been seriously abused and misused. This article attempts to list some specific cases, analyze them, and distinguish right from wrong.

PoW Mining: Bitcoin

"Mining" has three functions in Bitcoin:

1. Determine the direction of time.

2. Generate new blocks.

3. Allow miners to obtain block rewards.

I will not elaborate on the specific mathematical process of mining here, as it is explained in my Bitcoin Principles course. Here is a brief explanation of the three functions of mining:

1. Determine the direction of time. Mining is a physical and mathematical process in which miners consume huge amounts of electricity and take a considerable amount of real-world time to find a compliant solution. There are three natures of time, and this issue will not be elaborated in detail here. Time itself is not a physical reality. We can only prove the consumption of energy through mathematical evidence (specifically, cryptographic evidence), thereby indirectly proving the order of time. This issue is so critical that the second section after the introduction of Satoshi Nakamoto's white paper is about the issue of time. Satoshi Nakamoto also called the blockchain a time chain. The blockchain is a one-way, irreversible linked list in the time dimension, which is the biggest difference between the blockchain and the ordinary linked list structure. This layer of function is also the most secretive, and is almost unknown and unknown.

2. Generate new blocks. The mathematical process of mining is to find a legal solution to the inverse hash operation from a cryptographic point of view, and the only way is brute force. In essence, Bitcoin miners are using the most powerful computing power on our planet to attack Bitcoin itself 24 hours a day, but can only crack a much weaker problem within the specified time. Whenever a miner successfully cracks this weak problem, his attack power is captured by the Bitcoin system and minted into a new block, locking the transaction data in the block, and strengthening the protection of all historical blocks (that is, the entire blockchain) against tampering. This layer of function can be understood by a little understanding of technology.

3. Allow miners to receive block rewards. This is the most superficial function, and it is also the most well-known and imitated. However, even at this level, Bitcoin's approach is completely opposite to that of almost all imitators. Bitcoin's block rewards are actually written into the blocks by the miners themselves, and there is no authoritative center to assess and issue this reward. However, if we carefully analyze the implementation methods of their so-called "mining" by almost all imitators, we will find that almost all of them are assessed and issued by an authoritative center. Therefore, even if it is just copying and imitating the rewards and incentives, it is completely copycat and going in the opposite direction.

In the overall design of Bitcoin, these three functions of mining are perfectly combined together, interdependent, working together, and inseparable.

PoW Mining: Dogecoin

Dogecoin mining is one of the systems closest to Bitcoin. This is because Dogecoin is a successor to Litecoin, which in turn forked from Bitcoin. Litecoin changed Bitcoin's mining algorithm from SHA-256 to scrypt, and Dogecoin inherited this algorithm.

Since the difference between Dogecoin and Bitcoin is not mainly in mining, but in other aspects such as monetary policy, this is beyond the topic of this article and will not be expanded here.

PoS Mining: Ethereum

Since Ethereum has completed a major merger in 2022 and upgraded from PoW (Proof-of-Work) to PoS (Proof-of-Stake), it is no longer similar to Bitcoin mining, but is closer to a deposit-yield model.

The advantages of PoS are also its disadvantages. Mining does not require electricity and effort, it is more environmentally friendly, and it is easier to produce new blocks, but this block is no longer self-proven - every PoS proof needs to rely on chain data. Then at the root, we will fall into a circular argument. Should we believe in the block first or the chain first? We will find that: to verify the block, we need to believe in the chain first; and to verify the chain, we need to believe in the block first.

Both Bitcoin mining and Ethereum staking are capital-intensive businesses. The difference is that Bitcoin mining consumes a huge amount of capital to create Bitcoin, while Ethereum staking has almost no wear and tear on the pledged capital, but issues Ethereum rewards to these capitals out of thin air as interest.

Liquidity Mining: Sushiswap

In the DeFi Summer of 2020, Sushiswap forked Uniswap, took the lead in issuing coins, and launched liquidity mining (LP mining), quickly seizing a lot of market share from Uniswap.

From here on, the term mining is separated from the chain, and the function of generating blockchain is lost, leaving only the function of incentivizing expected behavior, that is, rising to the incentive layer. The so-called liquidity mining is to let users lock the liquidity token (LP token) representing the currency pair into a mining contract, and then the smart contract rewards the user with the platform token SUSHI according to the agreed rules.

If this thing is completely implemented through smart contracts on the chain and is open and transparent, it can also be a good means of incentive to achieve certain intended purposes (such as promoting liquidity migration).

Locked Mining: Kraken SaaS, Lido, FIL, UST

Going a step further, users do not need to do anything, they just need to pay money (coins) and give the coins to the platform to lock them up, and then they can get the income rewards continuously according to the agreement. This is the popular lock-up mining.

We have seen this model in Kraken’s Staking-as-a-Service, in Lido’s ETH staking service, in the FIL (Filecoin) lock-up plans launched by some manufacturers, in the explosive UST, and in the lock-up and interest-earning of many exchange platform coins.

Deposit ETH and get ETH interest. Deposit FIL and get FIL interest. Deposit UST and get UST interest (this is the pinnacle of awesomeness, UST is a "stablecoin"!!!).

In a broad sense, bank time deposits and regular interest payments are also a form of locked-up mining.

Locked-up mining is almost always the hardest hit area of ​​Ponzi schemes. Often, you simply cannot figure out whether the so-called platform has used the coins you locked up to make reasonable money, or to make high-risk leveraged business to earn interest, or even to take money from one place to pay for another, or to take in new money to pay off old money.

Bandwidth mining: Wanke Cloud

The model represented by OneCloud, which attracts speculators to earn tokens and thus boosts the sales of hardware boxes, is also admirable. Moreover, everyone shares bandwidth and storage to form a P2P content acceleration network, which is a beautiful scene that is indeed exciting.

However, in this scenario, it is impossible to find a proof-of-work algorithm that is as easy to verify as the hash calculation used by Bitcoin to prove how much contribution each node has made. OneNet Cloud's approach can only regress to centralized evaluation and rewards, thus completely obliterating the meaning of decentralization and turning the entire model back into an illegal financial operation.

Selling boxes is centralized. Rewarding tokens is also centralized. This becomes illegal fundraising.

There are three elements of illegal fundraising: first, illegality, second, inducement, and third, participation by non-specific groups of people. When a large number of players buy the OneCloud boxes at high prices for the purpose of making money rather than spending, the nature of the matter has changed fundamentally.

Mobile mining: π

There is a "non-mainstream" project that has been despised by the mainstream of the cryptocurrency circle for many years, but has bred a huge group of fanatical fans - π (Pi). Many people say it is a Ponzi scheme, but it is not. Participants do not need to invest money, which is what the project has always advertised. Install an app, open it and click a few times every day (play ads), and you can "mine" and earn tokens. Why not? If you can invite a few friends, you can also speed up the mining.

The project has a formal issuance curve, but it has never been launched on the mainnet, so there is no liquidity at all. At present, this thing is at most a centralized "points". But this "points" has no practical use. The project has been telling stories, but it has never been implemented. Maybe once it is implemented, the bubble will burst.

The cleverness of the whole design lies in that it relies on stories and imagination to fool a bunch of silly people into opening the App and clicking on ads every day. You can check the price of mobile advertising revenue on Google and then simply calculate the daily active users. These actual advertising fees all go into the pockets of the project party. If there are really as many users as the legend says, it is estimated that they have made tens of millions of US dollars over the years, haha.

In any case, compared with the classic web3 routine of issuing a token to the secondary market, using the hot money of the leeks in the secondary market to subsidize the primary market, and the project party in the middle making a profit from the friction fees, the mobile phone mining of π is just a legal and reasonable way to make some advertising fees by using the dreams of leeks. So far, it has not directly cut leeks in the secondary market, which is already relatively pure.

Trading mining: FCoin, x2y2, blur

When you hear the name of trading mining, it must be something that places with trading as their main business will do. There are two types of exchanges: one is the homogeneous token exchange, and the other is the non-homogeneous token (NFT) trading market.

Homogenized token exchanges are what we commonly call exchanges, such as Binance and Coinbase. Speaking of trading mining, the earliest inventor may not be FCoin, but it was FCoin that made trading mining popular.

Trading will get you free platform coins. All of a sudden, countless arbitrageurs rushed to place orders. After selling the mined tokens, after deducting the transaction fees, there must be some profit, so that people will continue to take advantage of this. But the wool comes from the sheep, and FCoin can't bear the price of the platform coin. Death spiral, rapid collapse.

x2y2 is a new NFT trading market that wants to challenge opensea, the leader in the NFT market. It has also tried trading mining. Obviously, this will lead to a large number of fake orders. However, the game makers are obviously more clever. The transaction fees collected are real ETH, but the rewards are printed out of thin air. The fake order mining people have to "dig-withdraw-sell", which must be the leeks in the secondary market. Does the project party care about the leeks? Maybe not so much. The project party has made a lot of money just by relying on the ETH contributed by the fake order people. This is a typical case of a joint harvester conspired by the platform and the fake order people to harvest the secondary market together.

Blur, which has recently posed a real threat to OpenSea, has adopted a variant of transaction mining - bid mining. The problem with x2y2's transaction mining is that the project party only wants to reap the benefits, not solve the problem. But Blur is indeed trying to solve the most critical problem of the NFT market. What is this problem? Insufficient liquidity. How to make liquidity sufficient? Increase the depth. Thinking about this level, the answer is obvious. It is useless to just subsidize transactions, increase transaction volume, and create a false prosperity. Subsidize bids, increase market depth, and allow those who want to sell to sell at any time to solve the key problem. However, the routine behind is still the same. The subsidy money is definitely not borne by the platform alone, but it invites the majority of leeks in the secondary market to suffocate for their dreams together, take over together, and undertake the selling orders of the primary market miners.

Running mining: StepN

StepN was once a typical representative of web3 and a successful product of running mining. In fact, it can be compared with OneNet, because both combine the token economy with physical work (OneNet is boxes and bandwidth, StepN is running and exercise), and both use token incentives to promote terminal sales (OneNet sells boxes, StepN sells shoes - virtual shoes NFT).

But obviously StepN goes several steps further than Wanke Cloud!

First of all, OneCloud sells a hardware device, while StepN sells a digital running shoe NFT - a virtual equipment! Once the hardware device is sold, the seller at least has a certain degree of control. However, the rules of this running shoe NFT, such as wear and tear, synthesis, etc., are actually all centrally controlled. The players' testicles are actually still firmly in the hands of the project party.

Secondly, the Wanke Cloud equipment creates value when it is running, but StepN's running shoes do not create any value when they are running. Yes, this is the biggest and most essential difference between the two economic systems. This is beyond doubt and absolute. Value, an economic term, refers specifically to the satisfaction of the needs of others by human behavior. The Wanke Cloud box, when run by players, theoretically contributes acceleration services to others. But StepN's running and exercising his body only satisfy his own needs, and basically does not contribute to the needs of others. In other words, the economic value is almost zero. The entire economic system has become a financial idle.

Therefore, if Wanke Cloud Mining is suspected of illegal fund-raising, then StepN's Running Mining is further superimposed with a Ponzi scheme (because it is financial idleness) on the basis of illegal fund-raising, and Imagine Competition may be suspected of fund-raising fraud.

summary

Through the above brief review of various common "mining" scenarios on the market, and tracing the origins and comparing them with Bitcoin "mining", it will be easier for us to see through various designs and schemes under the name of "mining" at a glance.

As the most attractive incentive, it is believed that various models named "mining" will continue to emerge. Of course, in the DeFi field, we often see its alias yield or APR, and in the NFT field, there is a new concept packaging of X-to-Earn. These are all just a change of name.

Financialized products, or quasi-financial products, are like financial products, often poison in honey. Only by carefully identifying them can you avoid their harm. Don't invest if you don't understand them, especially don't be confused by the marketing propaganda of various projects and people getting rich quickly, and don't get carried away and blindly participate.

You know, among the tens of millions who participated in the project, only one person became rich. The probability of a newbie trying to get a chestnut out of the fire to become one of the tens of millions is probably lower than the probability of winning a 5 million lottery ticket. After all, the lottery process is equal in probability; but in this market, it is seriously unequal.