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What are Mining Farms and Pools (Concept of Mining Pools)

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What are mining farms and pools? In the field of cryptocurrency, mining is a ver

What are Mining Farms and Pools (Concept of Mining Pools)

What are mining farms and pools? In the field of cryptocurrency, mining is a very important activity. However, due to the limited capacity of the Bitcoin network, there are issues such as high mining costs and low efficiency.

According to data from the University of Cambridge, the global hash rate was 836,000 TH/s in 2017, with a total energy consumption of approximately 21.7 TWh in 2019. By the end of 2018, the global difficulty was adjusted to 13.73 T, setting a new record since 2009. The current global difficulty has dropped to around 13 T. In December 2019, the significant increase in global hash rate caused the price of Bitcoin to drop from $65,000 to below $10,000. However, with the continuous rise in price and an increase to above $13,000, the current price of Bitcoin has recovered to over $12,000.

Why use mining machines? Because mining farms have different hardware configurations and no unified security standards. Therefore, various security issues need to be considered, such as device performance and electricity costs. The most direct choice for ordinary investors is to purchase a maintenance tool for mining machines, which is the dedicated Application-Specific Integrated Circuit (ASIC) chips provided by miners. If there were products specifically designed for producing ASICs before, then this mining machine can be considered as a server or software system. It can run blockchain nodes or smart contract platforms and reduce machine maintenance risks to some extent. It also has other advantages such as data storage and network bandwidth.

Therefore, mining farms can be divided into four categories: 1. Mining farms – professional institutions; 2. Mining pools – professional individuals; 3. Enterprises – financial service providers; 4. Mining companies. Mining companies usually refer to technology companies that provide transaction processing services.

In addition to the above two types, there are also some more complex application scenarios, such as exchanges and custodians. For example, traditional exchanges sell virtual assets to users through third-party brokers. Taking exchanges as an example, customers generally choose a well-known company as the operating agent. The most popular one is OKEx. In terms of domestic exchanges, OKCoin is mainly responsible for currency exchange and settlement, as well as fund management. Binance and Bitfinex have their own business flowcharts, code writing capabilities, financial reports, and audit tracking. In addition, Binance also provides technical support services. All of these help to solve mining-related issues.

Concept of Mining Pools

A mining pool is a decentralized financial service platform. In the traditional business model, users make money by providing funds, information, and transaction data. The operation of a mining pool is to entrust one’s own computing power to a third-party company for management or operation in order to obtain profits.

Bitcoin mining mainly consists of two types: one is mining with “normal” computing power, and the other is mining with “elite” computing power. Ordinary people can participate in the Bitcoin network without owning computer hardware by using cloud computing devices for storage and transmission of cryptocurrency.

In simple terms, when a “normal” person participates in Bitcoin mining, they become an “elite.” They can obtain corresponding rewards and profits by combining their computing power with blockchain technology.

So what makes an “elite” different? Let’s look at this concept:

1) Asset holders: When a holder holds a certain digital currency for a period of time, they will receive corresponding token rewards as a form of payment. In addition, investors have a higher level of attention to specific projects, such as virtual card projects in games, which may provide a lot of investment opportunities as their prices rise. (Note: If the investment amount exceeds 10,000 yuan, it will face liquidation risks). However, if the investment target has no value, it will be directly identified as an unqualified investor.

2) Speculative behavior: For example, if you want to buy a virtual card, sell it, or sell it to your friends, and then do some preparations to buy another card, you can raise more funds from other people. When all these funds are transferred, you will also become a miner and earn part of the income. This situation is also called speculation. Therefore, for those who want to invest in Bitcoin, the increase in investment amount has actually exceeded the total cost of your investment.

3) Interest-driven factors: Various intermediaries, including exchanges, are using various channels to expand their sources of income (regardless of size). The most typical one is exchanges. The operations of exchanges themselves are very complex and demanding. Therefore, in order to achieve profitability, exchanges must have strong capabilities and a good regulatory system, while ensuring that the rights and interests of users are not affected.

4) Capital efficiency: With the development and expansion of the Internet, more and more traditional enterprises are considering investing in cryptocurrencies.

Of course, some small companies choose to invest in high-volatility tokens, which has led to some problems in various industries. However, it is generally considered unacceptable and there is a considerable probability of a bubble. In addition, there is a view that if someone tries to build a huge closed ecosystem with the influence of Internet giants, they will eventually lose everything. Therefore, even large companies should not give up control of the market for the sake of pursuing high throughput (unless a 51% attack really occurs), otherwise it will be difficult to survive. However, what we see now is that not all mainstream technology companies will enter the field of cryptocurrencies in a similar way, and only a few companies with strong professional technical capabilities will get involved in this field.

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