NFTs: An unlikely yet efficient solution to mining centralization
Non-fungible tokens (NFTs) saw their first boom as digital art. Later, they exploded as on-chain collectibles, and now, they see a third surge in the blockchain gaming industry. However, due to their nature, NFTs hold great potential for much more than entertainment. We can use them to revolutionize the mining industry.
Defining NFTs
Before we get into the meat of the topic, let’s clear up some misunderstandings. What exactly are NFTs, and what are they used for? For many in the crypto world, these are unresolved questions. Even the most seasoned members of the community have problems comprehending what they’re all about. Let’s get this out of the way first.
Fungible means that a cryptocurrency unit is equivalent and holds the same value as another unit of the same cryptocurrency. In the same way that one dollar bill has the same value as all other dollar bills, we can say that the dollar bill is fungible. That said, non-fungible tokens are precisely what their name implies: They are unique, one-of-a-kind assets that aren’t equivalent to any other crypto asset. With some artworks, however, we have seen that an NFT can be a digital counterpart to a physical asset or thing. But that’s the short version.
The long, more technical answer is that NFTs are tokens minted under a specific standard that contain a set of data. The minter of each NFT determines the information it holds, which gives them their unique component. Nevertheless, the size of this data is limited to a few bytes.
Think of it this way: NFT’s are individual identities like your name — “Mary Renata-Serafina Smith.” This is not “you,” but it points to you as a unique person.
That said, we can say that NFTs are small data containers registered and traded on the blockchain.
NFT functionality and use cases
Now that we know what non-fungible tokens are, it’s also worth mentioning what they are not, which is often a source of confusion.
- NFTs are not digital art, as most people think. They do not store any piece of media but simply have a link pointing to it, stored in an arbitrary web server. A fitting example to understand this are tokenized tweets. When you buy a tweet NFT, you don’t acquire the tweet but just an asset on the blockchain holding a link to it. The tweet is stored in the Twitter servers, and if the person who tweeted it deletes it, you’ll end up being the owner of an asset with a broken link.
- On that note, NFTs are not ownership certificates, meaning that you are not the owner of the media linked to the NFT. Again, it’s just a link. It doesn’t prevent copy-pasting, edition, or deletion.
What are NFTs good for then? Some of these tokens, when used on a particular platform, might acquire functionality and even value. This is the case, for example, with Axie Infinity or Decentraland. The non-fungible tokens these games issue have utility, but only in their respective platform. If they were to shut down, the NFTs would lose all their utility, and thus, their value.
Using NFTs to decentralize cryptocurrency mining
Recapping, NFTs are on-chain data vessels so tiny that they can only store a handful of bytes of information. However, depending on the blockchain, platform, or protocol functionalities, even that can acquire great utility and value.
That said, imagine if we built a distribution protocol for cryptocurrency mining — a network in which hashrate would be tokenized and traded like any commodity.
It would work like this:
- Miners would connect their machines to the network.
- Through smart contracts, the network would calculate each miner’s hashrate.
- That hashrate would then be purchased by the highest bidder, who will take complete control of it.
So, where do NFTs come in? Like we said, these tokens acquire utility when they serve as a point of interaction with a given platform. What if this distribution protocol minted a non-fungible token representing each mining machine, along with its specs and computing power output? A token that, when interacting with the network, would enable its owner to configure the machine’s settings and manage them through the blockchain.
That way, miners could efficiently run their operations remotely from anywhere in the world. Not only that, but they could rent or even sell their machines to the highest bidder, whose control would be transferred and exercised through their respective NFT. A completely trustless, decentralized, global, and fully functional hashrate network secured by proof-of-work, smart contracts, and blockchain technology.
Why it’s essential to decentralize hashrate
Bitcoin is gaining traction worldwide. Regardless of whether the price goes up or down, the number of new wallets keeps growing by the hour. We even got a whole country adopting Bitcoin as legal tender. But as the network keeps growing, new challenges come up for it.
The bigger Bitcoin becomes, the more enemies it will gain. And we, as a community, have to find new ways to fight them. We can’t have another episode like China’s mining ban take us by surprise. Even if miners found a new solution quickly enough, events like that result in awkward hiccups and unnecessary inconveniences for Bitcoin.
A solution like the one we mentioned in this article would provide a hedge against this kind of situation by completely decoupling hashpower from the geographical location where it’s produced. It would enable mining pools to conveniently purchase any hashrate they see fit from miners on the other side of the planet. But it would also allow small miners to rest easy knowing that they’re running their operations in a miner-friendly country while staying profitable by renting and selling both their hashrate and their miners to the highest bidder.
At Titan, we believe that cryptocurrency is the future of global finance, and as such, it should be accessible and inclusive for everyone and anyone. That said, a protocol like this would take cryptocurrency mining to its next stage — one where risk is minimal and new opportunities flourish, allowing anyone to jump in and be a part of the network regardless of their budget.
That is why we’re building it.
Titan is actively working to optimize mining and make proof-of-work cryptocurrencies more accessible and democratic. If you liked this story, make sure to subscribe to our blog and sign up for our weekly newsletter to stay up to date with all things crypto. You can also visit our social media through the links below. We’ll be glad to have you!
