How Lumerin decentralizes Bitcoin mining at the hashrate ownership level
We can decentralize proof-of-work networks through smart contracts and data stream routing
Is Bitcoin mining centralized?
With the institutionalization of mining over the last years, concerns for centralization have risen.
As enterprise-level mining entities expand their operation, hashrate becomes more geographically concentrated. These entities then “sell” that hashrate to the pool with the best deal. Here’s where it gets complicated.
The top 3 mining pools currently 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.
This centralization, not of geographical location but of control of hashrate, poses a risk to Bitcoin.
Of course, nobody can force these organizations to renounce control of their hashrate. They’re free to do whatever they want with it.
So how can we decentralize hashrate without going against Bitcoin’s core principles of freedom and tamper-resistance?
Enabling redistribution of hashrate
As we mentioned, mining “farms” usually point all their hashrate to one single pool. This is mostly a matter of convenience, as managing thousands of miners can be extremely cumbersome, even with high-end software.
Manually splitting the hashrate all those machines produce would take significant effort and time. As a result, miners settle with pools and close the deal for their complete hashrate.
Although this method is more straightforward and convenient, it’s a linear dynamic that creates only one decision-maker for that large amount of hashrate: the pool operators.
But what if we provided these mining farms equipped with thousands of ASICs with a platform that enables them to distribute their hashrate more efficiently and, even more so, at an increased profit?
Decoupling hashrate production from control
Enter the Lumerin Protocol, a layer-0 blockchain protocol that enables miners to lock up their hashrate in smart contracts and sell them to the highest bidder.
The process is automated thanks to smart contracts. Additionally, blockchain technology ensures transparency and allows the information to be publicly available for everyone.
A protocol like Lumerin enables a new proof-of-work model that favors decentralized ownership of hashrate.
In this new model, instead of selling their hashpower to a single mining pool, miners can create different offers to put their hashpower up for sale in the form of smart contracts.
There are many hashrate tokenization projects out there, but most of them entitle holders to a portion of the rewards earned by that hashrate.
Lumerin innovates by granting complete control and ownership over the purchased hashrate.
Users aren’t receiving the proceeds of the hashrate. They are acquiring the actual hashrate to point to whichever mining pool they please.
As a result, when miners split up their hashpower in different contracts and offers, they facilitate access to hashrate for retail and small investors. This, in turn, creates multiple decision-makers, as each one of those buyers is acquiring control over that hashpower.
Closing thoughts
A protocol like Lumerin allows miners to easily distribute, trade, and commoditize their hashrate.
From the investors’ side, it broadens access to hashrate and hashrate-based products, improves transparency, and enables the little man to participate in the mining process of the Bitcoin network.
In a more general sense, the Lumerin Protocol provides the necessary infrastructure to build a global, decentralized hashrate marketplace in which anyone and everyone can participate.
However, the most important advantage of enabling remote, decentralized ownership of hashpower is distributing hashrate across multiple decision-makers in Bitcoin.
That distribution is necessary for reversing the current trend of centralization and further ensuring the network’s security in the long term.
Do you want to learn more?
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