Halving Q&A: Solo bitcoin miners are ‘vital’ for the ecosystem

Bitcoin is much bigger than just the blockchain. Bitcoin has its own raft of mining CEOs in orbit, as well as exchange-traded funds, media operations, venture capitalists and lobbyist groups.

Still, the Bitcoin “industry” exists on the same plane as hobbyists mining out of their garages and in DIY farms. Regular folk run full nodes to bolster the blockchain, others operate network monitors and other free services to make it more accessible.

All that’s a far cry from the billion-dollar public companies raising debt to hoover up mining rigs non-stop.

Mining pools bridge these two very different worlds that exist within Bitcoin. Individual miners running a few ASICs in their basement can join a pool to hash alongside operators with thousands or rigs — and split any bitcoin mined based on the hash rate contributed.

While there are exceptions, an overwhelming majority of bitcoin is mined by pools. AntPool, Foundry and F2Pool are the biggest, responsible for more than 63% of all blocks over the past week.

Blockworks caught up with bitcoin mining veteran Alejandro de la Torre to learn more about the dynamics of bitcoin mining and pools heading into the halving later this week.

De la Torre has worked for years in the bitcoin mining space, setting up mining operations across the globe. He led both BTC.com and Poolin as vice president and grew those two pools to be the largest for bitcoin global hash rate. Alejandro also worked for Block (formerly Square), assisting with the launch of the firm’s new bitcoin mining hardware.

De la Torre recently co-founded the first Stratum v2 mining pool DEMAND, improving security, efficiency and most importantly decentralization by allowing miners to build their own blocks — which he views as a key milestone in bitcoin decentralization efforts.

Keep reading for excerpts from Blockworks’ interview with de la Torre.

Blockworks: What are the biggest concerns for mining pool operators around the halving? If miners find it uneconomical to mine, could it reduce the number of effective pools?

De la Torre: Reduction of hash rate is the main concern for smaller pools. As they do not have much hash rate to rely on, any reduction from the mining industry due to the halving may be life threatening.

On that point, however, smaller pools tend to be whitelabels of larger pools, giving them a chance to survive the initial drop in hash rate and consequent build up. I still believe that smaller pools face some very hard months, let’s see.

Halvings usually bring in great change in the pool industry, flushing out those pools that are not up to par. I think this change is a net-good for the bitcoin mining industry.

*DEMAND Mining Pool co-founder & CEO Alejandro de la Torre*

Blockworks: Publicly-traded firms control somewhere around 20% of the hash rate. Are they all that important to bitcoin mining? How influential are they with regard to how pools are run?

De la Torre: Two public companies run their own pools, so yes they influence the pool space. Public companies are important to the ecosystem as they tend to be very large, commanding massive operations and hash rate.

However, I sometimes overestimate their importance. There is a very large amount of hash rate not controlled by public miners, all around the globe. I put more importance to these large private operations.

Blockworks: What’s your take on whether mining pools are a centralizing factor in bitcoin? Are participants in pools reactive enough to mitigate the unlikely scenario of collusion between pool operators, by leaving the offending pools to make 51% infeasible?

De la Torre: It’s concerning, this is why I decided to launch a built-from-the-bottom-up Stratum v2 pool.

Stratum v2 [a bitcoin mining protocol] will help decentralize bitcoin mining further by giving miners the ability to build their own blocks and add their own transactions. This right now, is done only by the pools, leading to the centralization in bitcoin mining.

We need Stratum v2 and fortunately for miners, it’s here. This is the most important milestone in bitcoin mining for a very long time, in my opinion.

As for the 51% scenario, it is unlikely to happen, ever. Pools would be making their business obsolete if they attack bitcoin. Not to mention, it’s easy for a miner to switch pools, so a miner can monitor and act accordingly.

Blockworks: What is DEMAND aiming to change in bitcoin mining?

De la Torre: Give power back to the miners. Our goal aligns with the Bitcoin ethos: Continue the decentralization effort behind bitcoin mining.

We are bitcoiners first and foremost. Filippo Merli, our chief technology officer, was the lead developer of the open-source Stratum v2 stratum reference implementation (SRI). I also helped out throughout the last two years. We know Stratum v2 and have plans to unlock its potential for the benefit of miners.

Aside from the security, efficiency and decentralization upgrades with Stratum v2, we will provide a transparent payment system. Usually, mining pools are a black box. With DEMAND, you’ll be able to verify all your “shares,” or accepted hash rate, you’ve sent to us. Don’t trust, verify…right?

Blockworks: If public mining companies only mine a relatively small percentage of all bitcoin, who are all the other miners? Private companies or individuals?

It’s a mix. Private companies have the largest chunk of that ‘other’ hash rate. But we cannot underestimate the home/individual/solo mining of bitcoin. They represent a strong, ideological driven group. Vital, for the ecosystem.

This is the reason why we have released a solo mining pool (now available). We do not intend to make any money from the solo pool. It’s there for this, honestly, badass group of miners.

Blockworks: What do you see happening with mining after the next halving? Is it headed towards consolidation or are there creative solutions being built?

De la Torre: Some consolidation will occur, without a doubt. This is a hell of an opportunity for those that know what they are doing.

Creativity and innovation is what I am excited about, every halving (this is mine and Filippo’s third) has seen an explosion of new companies coming out with solutions to problems and new ways to unlock potential.

There will be a lot of that in this halving. Especially since there are many more people working in this industry this time around.

This interview was edited for brevity and clarity.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.