[Note: the following overview on known Bitcoin mining farms was originally included in a new paper but needed to be removed for space and flow considerations] Several validators on the Bitcoin network, as well as many watermarked token issuers, are identifiable and known.What does this mean?Many Bitcoin validators are drifting usage outside the pseudonymous context of the original network due to their use of specialty equipment that creates a paper trail.In other words, pseudonymity has given way to real world identity.Soon issuers of color will likely follow because they too have strong ties to the physical, off-chain world.For instance, on August 4, 2015, block 368396 was mined by P2Pool.This is notable for two reasons.The first is that the block included a transaction sent from Symbiont.io, a NYC-based startup building “middleware” that enables organizations and financial institutions to create and use ‘smart securities’ off-chain between multiple parties and have the resulting transaction hashed onto a blockchain, in this case, the Bitcoin blockchain.

Several weeks later, Symbiont announced that it would begin using their “stack” to provide similar functionality on a permissioned ledger. – – which initially used Open Assets to issue a $5 million “cryptobond” onto the Bitcoin blockchain, but have subsequently switched to using a “blockchain-inspired” system designed by Peernova.The second reason this was notable is that the block above, 368396, included at least one transaction from Symbiont which was mined by a small pool called P2Pool.Unlike other pools discussed in this paper, P2Pool is not continually operated in a specific region or city.It is decentralized in that all participants (hashers) must run their own full Bitcoin nodes which stand in contrast with pools such as F2Pool, KnC mining pool and BTCC (formerly called BTC China), where the pool operator alone runs the validating node and the labor force (hashers) simply search for a mid-state that fulfills the target difficulty.Due to this resource intensive requirement (running a full node requires more bandwidth and disk space than merely hashing itself), P2Pool is infrequently used and consequently comprises less than 1% of the current network hashrate.

P2Pool’s users are effectively pseudonymous.bitcoin juni 2011Due to the intended pseudonymity it is also unclear where the transaction fees and proceeds of hashing go.bitcoin aliens app downloadFor instance, do the hashers comprising this pool benefit from the proceeds of illicit trade or reside in sanctioned countries or who to contact in the event there is a problem?bitcoin trend microAnd unlike in other pools, there is no customer service to call and find out.ethereum example contractsBitcoin’s – and P2Pool’s – lack of terms of service was intentionally done by design (i.e., caveat emptor).sklep za bitcoin

And in the event of a block reversal, censored transaction or a mere mistake by end-users, as noted above there is no contract, standard operating procedure or EULA that mining pools (validators) must adhere to.bitcoin miner intel hd 3000This is discussed in section 3.bitcoin steam walletThis pseudonymous arrangement was the default method of mining in 2009 but has evolved over the years.win bitcoin diceFor example, there are at least two known incidents in which a miner was contacted and returned fees upon request.bitcoin faucet direct paymentLaunched in late summer of 2012 and during the era of transition from GPUs and FPGA mining, ASICMiner was one of the first publicly known companies to create its own independent ASIC mining hardware.

Its team was led by “FriedCat,” a Chinese businessman, who custom designed and integrated ASIC chips called Block Eruptors, ASICMiner operated their own liquid immersion facility in Hong Kong.At its height, ASICMiner (which solo-mined similar to KnC and BitFury do today) reached over 10% of the network hashrate and its “shareholders” listed its stock on GLBSE (Global Bitcoin Stock Exchange), GLBSE is a now defunct virtual “stock market” that enabled bitcoin users to purchase, trade and acquire “shares” in a variety of listed companies.GLBSE is notable for having listed, among other projects, SatoshiDice which was later charged by the Securities and Exchange Commission (SEC) for offering unregistered securities to the public.While unregistered stock exchanges catering to cryptocurrency users and China-based mining pools may be common sights today, on August 28, 2013, a bitcoin user sent a 200 bitcoin fee that was processed by ASICMiner.Based on then-market rates, this was approximately worth $23,518.

The next day, for reasons that are unknown, ASICMiner allegedly sent the errant fee back to the original user.At the time, one theory proposed by Greg Maxwell (a Bitcoin Core developer) was that this fee was accidentally sent due to a bug with CoinJoin, a coin-mixing service.The second notable incident involved BitGo, a multisig-as-a-service startup based in Palo Alto and AntPool, a large China-based pool (which currently represents about 15% of the network hashrate) operated by Bitmain which also manufacturers Antminer hardware that can be acquired directly from the company (in contrast to many manufacturers which no longer sell to the public-at-large).On April 25, 2015 a BitGo user, due to a software glitch, accidentally sent 85 bitcoins as a mining fee to AntPool.Based on then-market rates, this was worth approximately $19,197.The glitch occurred in BitGo’s legacy recovery tool which used an older version of a library that causes a 32-bit truncation of values and results in a truncation of outputs on the recovery transaction.

To resolve this problem, the user “rtsn” spent several days publicly conversing with tech support (and the community) on Reddit.Eventually the glitch was fixed and Bitmain – to be viewed as a “good member of the community” yet defeating the purpose of a one-way-only, pseudonymous blockchain – sent the user back 85 bitcoins.On September 11, 2015 another user accidentally sent 4.6 bitcoins (worth $1,113) as a fee to a mining pool, which in this instance was AntPool.Bitmain, the parent company, once again returned the fee to the user.Do we know about other farms?HaoBTC is a newly constructed medium-sized hashing farm located in Kangding, western Sichuan, near the Eastern border with Tibet.It currently costs around 1.5 million RMB per petahash (PH) – or $242,000 – to operate per year.This includes the infrastructure and miner equipment costs.It does not include the operating costs which consists of: electricity, labor, rent and taxes (the latter two are relatively negligible).

The facility itself cost between $600,000 – $700,000 to build (slightly less than the $1 million facility BitFury built in 2014 in the Republic of Georgia) and its electrical rate of 0.2 RMB per kWh comes from a nearby hydroelectric dam which has a 25,000 kW output (and cost around $10 million to construct).In dollar terms this is equivalent to around $0.03 / kWh (during the “wet” or “summer” season).For perspective, their electric bill in August 2015 came in at 1.4 million RMB (roughly $219,000); thus electricity is by far the largest operating cost component.When all the other costs are accounted for, the average rises to approximately $0.045 per kWh.The electricity rate is slightly more expensive (0.4 RMB or $0.06) during winter due to less water from the mountains.The summer rate is roughly the same price as the Washington State-based hashing facilities which is the cheapest in the US (note: it bears mentioning that Washington State partly subsidizes hydroelectricity).At this price per joule it would cost around $105 million to reproduce “work” generated by the 450 petahash Bitcoin blockchain.

Due to a recent purchase of second-hand ASICMiner Tubes, HaoBTC currently generates just over 10 PH and they are looking to expand to 12 PH by the end of the year.The key figure that most miners are interested in is that at the current difficulty level it costs around $161 for HaoBTC’s farm to create a bitcoin, giving them a nearly 100% margin relative to the current market price.The ASIC machines they – and the rest of the industry uses – are single use; this hashing equipment cannot run Excel or Google services, or even bitcoind.Thus common comparisons with university supercomputers is not an apples-to-apples comparison as ASIC hashing cannot do general purpose computing; ASIC hashing equipment can perform just one function.There is also a second-hand market for it.For instance, hashing facilities such as HaoBTC actively look to capitalize off their unique geographical advantages by using older, used hardware.And there is a niche group of individuals, wanting to remain anonymous, that will also purchase older equipment.

Although individual buyers of new hashing equipment such as Bob, do typically have to identify themselves to some level, both Bob can also resell the hardware on the second-hand market without any documentation.Thus, some buyers wanting to buy hashing equipment anonymously can do so for a relative premium and typically through middlemen.While Bitbank’s BW mining farm and pool have been in the news recently, perhaps the most well-known live visual of mining facilities is the Motherboard story on a large Bitcoin mining farm in Dalian, Liaoning: Incidentally, while Motherboard actually looked at just one farm, the foreigner helping to translate for the film crew independently visited another farm in Inner Mongolia which during the past year Bitbank apparently acquired.Are there any other known facilities outside of China?Genesis Mining is a cloudhashing service provider that purportedly has several facilities in Iceland.According to a recent news story the company is one of the largest users of energy on the island and ignoring all the other costs of production (aside from electricity), it costs about $60 to produce a bitcoin.

However, when other costs are included (such as hardware and staffing) the margin declines to — according to the company — about 20% relative to the current bitcoin price.At the time of the story, the market price of a bitcoin was around $231.The four illustrations above are among a couple dozen farms that generate the majority of the remaining hashrate.What does this have to do with colored coins?The network was originally designed in such a way that validators (block makers) were pseudonymous and identification by outside participants was unintended and difficult to do.If users can now contact validators, known actors in scenic Sichuan, frigid Iceland or rustic Georgia, why not just use a distributed ledger system that already identifies validators from the get go?What use is proof-of-work at all?Why bother with the rhetoric and marginal costs of pseudonymity?The social pressure type of altruism noted above (e.g,.Bitmain and BitGo returning fees) actually could set a nebulous precedent: once block rewards are reduced and fees begin to represent a larger percentage of miner revenue, it will no longer be an “easy” decision to refund the user in the event there is a mistake.

If Bitmain did not send a refund, this backup wallet error would serve as a powerful warning to future users to try and not make mistakes.While there have been proposals to re-decentralize the hashing process, such as a consumer-device effort led by 21inc which amounts to creating a large corporate operated botnet, one trend that has remained constant is the continued centralization of mining (block making) itself.The motivation for centralizing block making has and continues to be about one factor: variance in payouts.Investors in hashing prefer stable payouts over less stable payouts and the best way to do that with the current Poisson process is to pool capital (much like pooling capital in capital markets to reduce risk).Whether or not these trends stay the same in the future are unknown, however it is likely that the ability to contact (or not contact) certain pools and farms will be an area of continued research.Similarly one other potential drawback of piggy backing on top of a public blockchain that could be modeled in the future is the introduction of a fat tail risk due to the boundlessness of the price of the native token.