Bitmain promises catch-22 hashrate and mining transparency reports

Posted: 27 July 2018 2:50 pm
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You either trust it or you don't, and Bitmain's mildly fishy disclosures can't change that.

Bitmain, the world's largest cryptocurrency miner and manufacturer, has introduced a new policy of catch-22 hashrate shipping disclosures going forward, along with a public stance against secret mining, hoarding and empty block mining.

If you trust Bitmain you don't need the disclosures. If you don't trust Bitmain you probably don't trust the disclosures either.

The promises

The updates include a few new commitments:

  • Hashrate disclosure. Bitmain is ostensibly revealing its self-mining hashrate across different algorithms, to be updated every 30 days. This is how much mining the company itself is doing with its own machines.
  • No secret mining. Bitmain is taking a stand against secret mining. This is when a miner manufacturer mines with equipment that it has developed in secret and not revealed to the public, for an "unfair" advantage.
  • No empty block mining. Bitmain has said it will never mine empty blocks and will actively seek to mitigate it when it does happen. In (over)simplified terms, empty block mining is a way of mining a kind of lightweight diet block that only has the mining reward, but doesn't carry transactions. Because it's "empty" it can be processed more quickly and cheaply for a competitive advantage, while still netting the same reward, minus the usually-negligible transaction fees. The downside for everyone else and the network as a whole is that transactions can't get sent in those blocks. Although often attributed to malicious intent, random chance or various technical quirks can also cause empty blocks to appear. When it does happen, Bitmain says it will get to the bottom of it and publicly report on its findings.
  • Publicly available shipping and volume information. Bitmain has said it publicly releases the shipping and volume information for the first model of all new miners, by tweeting the quantity and payment timestamps from the official Antminer Twitter account. This will be done only for the first round of shipments of new miners because they will have the most significant impact on the network difficulty of a blockchain.
The catch

Here's Bitmain's hashrate disclosure at the time of writing.

Those numbers are hard to interpret as anything other than potentially misleading at best, to completely fabricated in an insultingly obvious way at worst. This is because they're extremely small.

Consider the 1,692.05 SHA-256 figure alone.

That particular algorithm is used for several coins, the most prominent of which are bitcoin and Bitcoin Cash. Bitmain is closely involved in Bitcoin Cash, but let's set that aside and optimistically assume that all of its SHA-256 mining is focused on bitcoin alone. 1,692.05 PH/s would mean it controls about 3-4% of bitcoin's hashpower.

That would mean it's only using about 125,000 mining machines for itself across all its SHA-256 mining, generously assuming that it's only using Antminer S9s operating at usual consumer levels of 13.5TH/s each.

For some perspective, Bitmain is thought to manufacture about 200,000 to 300,000 mining machines per month, of which at least half are probably for SHA-256. At the same time, just one of its many mining farms was holding about 25,000 machines back in August 2017 and its scale has only ramped up globally since then.

Just last April it was angling to buy up 40 acres (about 162,000 square metres) in Washington state, which by itself would be way more than enough to accommodate its entire alleged SHA-256 hashrate across about 125,000 machines.

The discrepancy between Bitmain's manufacturing and self-mining rates could be explained by them simply selling off almost all of their machines, which has undoubtedly been monumentally profitable. But just by eyeballing the physical space being occupied by Bitmain mining warehouses next to their disclosures across all algorithms it doesn't look like the numbers add up.

The numbers don't include Bitmain mining pools either, which are another matter entirely. Between the Bitmain-owned and Antpool pools, Bitmain controls at least 35% of bitcoin's hashrate and a similar amount for other coins. Bitmain sets the templates used by these mining pools, so it functionally controls these as well.

The catch-22

Bitmain's fishy transparency report is vaguely reminiscent of Tether's fake audit. Just like when Tether's lawyers went through some cargo cult accounting motions, Bitmain might just be talking itself up while knowing full well that it doesn't really have to honest, transparent or accurate.

Or it might actually be completely honest and genuine. The numbers certainly don't seem to add up, but it's quite possible that they do. No one really knows the current scope of Bitmain's mining operations and like most things in cryptocurrency it's all just speculation at the end of the day.

The most likely option though is that regardless of whether or not all the disclosures are true, it's good business sense to have them there. Bitmain will continue to be subject to the same allegations either way so having these reports just gives it something to point at rather than continually denying accusations.

It might also signify a change in Bitmain's strategy and the state of the mining market. The crypto mining manufacturer market is a lot more competitive than it used to be, while Bitmain is quickly diversifying beyond mineable proof of work coins and further into the worlds of finance and technology as a whole. Bitmain might have grown big and strong through secretive and shady practices, and now that it's scaled up it might make sense to use its stature to try to enforce higher standards on the market as a whole. Essentially this move could be Bitmain trying to pull up the ladder after itself to hinder the competition.

Either way, if you don't trust Bitmain you probably won't trust its disclosures and if you do then you didn't need them. It's a catch-22 on the blockchain.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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