MINING AND THE FUTURE OF CRYPTOCURRENCIES


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(Interviewer: underlined; interviewee: normal font)


Could you please introduce yourself? 

I belong to the minority which practices mining as purpose of academic studies outside of Germany. 

So, it kind of is hard to imagine the daily routine of a miner, since it basically consists of solving complex algorithms, right? Maybe you could briefly outline why you pursued this career and describe your daily life, if it, for example, strongly differs from a the daily life of someone with what is considered a “normal occupation” and if you set yourself strict working hours? 

Not at all, since the idea of miners sitting in front of the computer all day, trying to solve algorithms the fastest is the completely wrong idea. Nowadays, this is not possible anymore as the algorithms are way too difficult.  Hence, this can only be solved in pools, meaning that ones computing capacity flows into different pools, the most established ones would be end pool and then ViaBTC, with which I work as well. This means that closing a block by running the computing capacities separately would be almost futile, as it has been realised that the required tempo is way too high. 

As always, the motto “together we are strong” counts, so, cooperation is the function of those pooles, meaning that all computing powers of different miners are combined in one pool and are then linked through hash rates, so called terahashes, leading to a lucky d quote. Lucky d quote refers to the rate at which a block is closed, not by an individual, but by a pool, where every individual gets, depending on the computing capacity yielded to the pool, the appropriate profit.

Therefore those massive mining firms in, for instance, Iceland and China are well established, since only an enormous computing capacity has a chance. 

Just to make clear, mining is less about self-reliance, but rather about team-work?

Correct. Also, mining is less of an occupation in terms of actually doing something, but is more about investing in a hardware and installing (constructing) it, linking it to the internet and a pool, and then the hardware usually operates independently. Hence, the task of a miner is to react as quickly as possible if a hardware is out of order, as every minute a hardware is not working costs money. 

Okay, but is there still any competition among the miners?

I am mining bitcoin cash at the moment, not bitcoin. Simply because the earnings are higher. However, speaking of high earnings is not really the right term nowadays, as the total operating performance has decreased by, I would estimate, 70% over the course of the last five months. This means that the earnings diminished by 70%, which can be explained by the fact that there are to little open transactions on the market momentarily.

This brings us to the topic of competition, because when too many people practice mining, mining is not profitable anymore - only if enough transactions are open, the transactions made get paid well. 

Okay, thank you. Then let’s move on to the next question: The process of mining requires a lot of energy, right? Hence there is a high usage of energy which is definitely harmful to the environment. Is mining, especially in a time in which the environment is extremely endangered, passable to you?

This is a very eligible question. To answer this, we have to go a little back in time. In 2009 mining could be practiced via a commercially obtainable laptop, thereby only requiring minimal energy. Nowadays it is gigantic - the energy used by a S9 Miner equals the amount used by a 2000 kilowatt fan heater. Additionally, there is also the energy required for cooling. As the earnings are very low, the costs of mining one bitcoin technically has set a limit, meaning that it is not lucrative anymore and furthermore, thinking six months ahead, is simply not justifiable anymore in an environmental sense. 

This is one of the reasons why Ethereum or other products rely on PoS, minting, as it is less damaging to the environment. 

Okay, could you maybe shortly and compactly conclude or summarise your answer, as this was a lot of information at once.

In terms of energy costs, also meaning the environmental tolerance, mining will not make any sense in technical terms in the near future. 

Thank you. Apart from this, it is a well-known fact that cryptocurrencies, at least most of them, are anonymous or pseudo-anonymous, which naturally has its advantages, but simultaneously presents a certain danger, as it spurs illegal and immoral activities. What is your opinion on this matter?

Actually, completely opposite. I believe that the rate of everything that comes within the limits of illegality is by far lower than it is in regards to fiat money. In my opinion, bitcoin has always been linked to illegality though the media. This is of course also comprehensible, because bitcoin’s origin is in the dark net. 

However, looking back 5 years, half a decade, so many transactions are made, of which 95% are made by traders, so people who are owning or losing their money at the stock exchange, who are doing this as a main-occupation. Therefore, I think that the criminality is way lower when it comes to cryptocurrencies, than it is with the fiat money system.

Okay, because we had a look at the example Silk Road, which you have probably heard of,  detected by the FBI in 2013, where a vast number of illegal goods were sold. Now, we have read that those dealings were financed by 144,000 BTC worth $28 million. This is what encouraged us to ask the previous question. 

Wait a moment, we are talking about $28 million, but if we look at the fiat money used for cocaine or other drugs worldwide, we are within the range of billion dollars. The disappearing $28 million is in comparison such a small number - it is like comparing apples and oranges.

Okay, that is a good point, thank you. Moving on to the next question. What do you think are cryptocurrencies still lacking or what could be improved?

This is a very interesting topic. On the one hand, cryptocurrencies are very positive due to their high transaction speed over continents, very long distances. This is something our current financial structures are failing at, especially with regard to price. Lets take as an example that I can skype with someone in China and it doesn't cost me a cent, but if I would transfer $100 to China, it would cost me half a dozen. And this is the reason why cryptocurrencies arose. 

What I consider as a deficit in the future is, that combating the government or governmental institutions successfully is not possible in the longterm. Instead it would be better, in my opinion, to make the approach to use the advantages of the blockchain technology, as well as certain formalities of the contemporary financial world. 

It is completely normal that I have to prove my identity or someone has ensure that it is really me when opening a bank account. I believe that the technology cannot avoid this, as the market is actually heading towards connecting those two components. 

I personally think that the aspect of anonymity will decline step by step and the cryptocurrencies that go along with this development, can be very, very, successful. On the other hand, it will never completely disappear from the market, because the discipleship is huge.

Okay, thank you, and you think that the reason for the governments’ critical relationship towards cryptocurrencies is the anonymity, which will decrease in the near future?

Of course, that is comprehensible. If we take a state for example, it requires a name to build schools, roads, hospitals. If the population would solely pay with bitcoins and nobody would pay taxes, then one has to consider where the kids will go to school or what roads will I drive. I assume there will be a good balance. Maybe something has to be taxed less, no transaction fees apply, but in my opinion cryptocurrencies will become in more regions legal when they adhere to guidelines. 

You have mentioned that cryptocurrencies are decentralised, do you think that it could be dangerous, due to the lack of control?

No, I believe that cash has much less control because there is much more to it in terms of volume and capitalization. Nevertheless, danger .. What is danger? If you do not have any danger in the world, then I have no more freedom in the world. You have to remember that. A danger always comes from a will. Now we just have to decide in the world: we can make a dictatorship, then no one has a free will and, hence we are less endangered. 

I am still a little bit confused about the answer. What do you refer to with dictatorship?

That was just an example. There will always be the danger and underground businesses of cryptocurrencies. However, it only affects 2% of all transactions, which is controlled, in my opinion. I cannot say that all apples in a basket are bad, just because one of them is. You have to consider rations. In my view, percent wise less illegal business are payed with cryptocurrencies, than they are with fiat money.  

How do you think, as an expert, will cryptocurrencies develop in the coming years?

From the technical point of view, I believe that it will develop more sustainable, using less energy, faster. You have to bear in mind that the bitcoin is the first coin in the crypto area and after every new invention, there are always evolutionary leaps. You cannot compare the first car to today’s Mercedes. The standards develop. Personally, I believe that there will be a huge leap in verification, meaning states can live with this technology simply because the users are verified. 

From a technological point of view, I believe that it will not make such a large percentage of energy consumption. In the future, you will rely on the more energy-efficient technology and probably, we may also be in the next two years, a completely new technology. You are also in the segment, you know cell phones and smartphones, which we did not even have until 2002. It was just a new evolutionary leap and today it is normal for us.

That’s true. So, you believe that the current fiat money could be completely substituted by cryptocurrencies or an improved form of cryptocurrencies?

Yes and it is imperative for our lives, because an advantage, for example, of these cryptocurrencies, is that it is impossible to make debts. You can only execute a transaction on a credit basis. This is a very important point. If you look at our financial system nowadays, we are still talking about national debt and bankruptcy and normally the petty man pays the bill. If we just keep thinking, what happens suddenly when nobody can get into debt anymore? Then we will no longer have this whole compound interest effect. Then the states can not go bankrupt anymore and every normal-thinking person has to say, that it is better if I one can live without a debt system.

Cryptocurrencies represent an important aspect for the future, our monetary system and our monetary policy…

Our monetary policy, as we know it today, will no longer be viable in the long term.

Okay, thank you for the response. We have one last question: Would the same cryptocurrency be used internationally, or would each country use a different cryptocurrency?

I believe that one of the benefits of cryptocurrency is that you do not need your own for each country. If we look at the world economy, there are also only a few currencies (USD, Euro, Yen, RUB) around the world that are traded.

Thank you very much.



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