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The Binance mining pool could disrupt the entire mining industry

May 11, 2020

Binance has set up its own mining pool. This could mean bad news for miners, but probably not for the reason you think.. We all know that Binance continues to expand its reach across the industry. The $ 400 million purchase through the CoinMarketCap exchange was a bold move to grab the attention of much of the crypto community, and the recent mining advance just before the 2020 cut in half shows this Binance is also interested in influencing from this point.

It looks like Binance’s corporate culture is that of innovation and experimentation. CEO Changpeng Zhao is known for being responsive, and When good ideas come from the company, it can use its enormous user base and resources to open up new markets.

The question is what impact the Binance pool will have on the miners themselves.

For starters, the impact can be minimal. Binance’s original target market will be miners who are currently mining through the pools of other Chinese exchangeslike Huobi and OKEx. There is tough competition between these exchanges and Binance starting a pool can be seen through this lens. Binance even recruited directly from Huobi and Bitmain to build their own business development team.

The Binance mining pool could disrupt the entire mining industryThe Binance mining pool could disrupt the entire mining industry

It’s early, but the change in global hash rate distribution since Binance started the pool tells the same story. Both Huobi and OKEx have lost a few percentage points of their share in the global hash. OKExPool and Huobi fell from 6.74% and 5.92% in April 2020 to 4.5% and 4.0% in early May Binance has attracted 4.5% of the network’s hash since its inception.

Historical Bitcoin Pool Hashrate Distribution

Distribution of the Bitcoin pool hashrate, May 2020

In established mining pools such as F2Pool and SlushPool, the hash rate has increased over the same period.

So far, Huobi and OKEx have mainly used their pools to attract customers from the stock exchanges and to support the services already offered. While older pools compete differently.

The exchanges have massive reserves of Bitcoin and other liquid funds. They can be operated at or near cost for long periods of time.

Edward Evenson of SlushPool and Ethan Vera of Luxor recently discussed this short-term advantage in the HASHR8 podcast on mining pools. They postulated that the Binance mining pool is used to manage prices because it can afford to cut prices. As Edward Evenson, Director of Business Development at SlushPool said:

“”If you have a reserve of 80,000 BTC, you can easily do what you want, especially if you are vertically integrated into a number of different industries. “

Another reason why Binance may be focusing on the Chinese mining market is that most of the equipment, bases and connections are still mainly located in China. It also makes economic sense: 65-70% of the global hash is in China.

My concerns about this are not the typical reports of excessive centralization in China, as recently expressed by Genesis Mining’s Philip Salter. Just like the lessons everyone can learn from Genesis’ dealings with hashing its customers during the 2018 bear market, it’s much more important to focus on how miners are treated than on where your business is located located.

I have a similar opinion to my Australian colleague Thomas Heller, Director of Global Business at F2Pool, who also participated in the debate on the HASHR8 podcast. He underlined:

“”The people who started Bitcoin companies in Asia, like pools or manufacturers, are Bitcoiners. They are no different from Bitcoiners from Europe, North America or other countries“”

Bitcoin mining and the real threat

Centralization is not a direct function of the geographic location. Bitcoin has no nationality and pools don’t need to be labeled as such. In addition to the growing development of farms in North America, major mining operators own and operate machinery in China, Russia, Kazakhstan, and elsewhere with much less expensive energy, regardless of where the operators call at home.

The basic risks in China are beyond Bitcoiner’s control, and it makes sense that anyone who wants to benefit from Bitcoin’s security contribution tries to find ways to avoid being dependent on a system that is likely to fail. Economic factors such as the proliferation of hardware manufacturers and the logistical benefits of mining without having to export the machines halfway around the world will continue to support a disproportionate amount of mining activity in this region.

Bitcoin mining is a license-free, fragile system where entry barriers are inexpensive electricity and access to efficient hardware.

The future success of SBI’s focus on delivering hardware to large North American mining operations or the potential entry of even better-equipped manufacturers like Samsung could change the mining landscape at a reasonable pace. As low as China’s electricity prices are now due to the long rainy season, You can’t even compete with some of the ways companies like Layer One or Greenidge Generation are exploring in New York with the support of Peter Theil.

So the threat that Binance poses is not geographical. The real threat is whether this crypto monster will affect the circular economy currently in place for established consortia. SlushPool is the oldest pool and uses a large part of its resources to develop proposals like Stratum V2. F2Pool had a strong voice in the SegWit 2x discussions and History suggests that its founders were on the right side of the argument. These types of pools make their profits by building a good reputation and experience in bitcoin mining.

The real risk is that Binance will make mining a short-term game where the only rules are the low commissions that can be offered. What is the consequence when pools that focus on the long-term success of your miners are squeezed? Like everything in the beautiful game that Satoshi created: the market will decide.

The views, thoughts and opinions expressed here are only those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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