08/16/2023 0 Comments

1. Crypto mining gets its own lobbying voice in Washington

Crypto miners are establishing a new voice in U.S. policy, starting up the Digital Energy Council to lobby for friendly policy as regulators and Congress are wrestling with the next steps in crypto regulation.

The member group will be advocating for policies “that promote responsible and sustainable energy development, grid resilience, maintain United States competitiveness, and protect national security,” it said in a Tuesday statement.

The miners are already in a difficult position with President Joe Biden’s White House, which has been calling for a punitive, 30% excise tax on mining operations for the “harms they impose on society.” Miners have also been facing steady criticism from Democratic lawmakers who say the companies threaten the environment.

“The focus on how both the digital asset mining and energy industries can collaborate and work together to bolster energy infrastructure, increase resilience and support energy sustainability and efficiency has been lost in policy conversations,” said Tom Mapes, the new organization’s founder and president, who worked on energy policy at the Chamber of Digital Commerce, a wider crypto advocacy group.

Mapes, who had also served as a chief of staff in the U.S. Department of Energy’s Office of International Affairs, said in a statement that “it’s important that energy and digital asset mining communities, both key stakeholders in our nation’s grid, have a real voice at the federal level.”

Based in Washington, he’ll initially be the organization’s sole employee. He said a top priority is “to highlight that digital asset mining is a real-world tool that can be utilized to meet the United States energy goals.”

“The Digital Energy Council is the only group in Washington, D.C., that is uniquely focused on the intersection of mining and energy abundance,” said Zach Bradford, the CEO of one of DEC’s member companies, CleanSpark (CLSK), a firm that’s been steadily expanding during the crypto winter.

“Politics is a team sport, and the broader our coalition and the more dedicated the efforts, the better,” Bradford said in an emailed statement.

2. Are Bitcoin ‘Drivechains’ The Future of Scaling? BitMEX Analysis

With the Bitcoin network’s programmability and scalability still relatively limited compared to other blockchains, developers continue mulling over ways to push the protocol’s capabilities to its limits.

One hotly debated idea comes from BIP 300 and BIP 301 – aka “Drivechains” – a soft fork proposal to allow Bitcoin to effectively scale through sidechains. In a blog post on Monday, analysts from BitMEX explored the benefits and tradeoffs of the proposal.

BIP 300: Sidechain Peg-Out

Proposed by developer Paul Sztorc, Drivechains is an “improved merged mined sidechain mechanism for Bitcoin.” A sidechain is another blockchain that connects itself to Bitcoin’s main network by using the same internal currency, BTC, for transactions and gas payments.

The upgrade’s first component part – BIP 300 – would imbue Bitcoin with the necessary peg-out mechanism for sidechains. This would allow users to “trustlessly” move their BTC between the main blockchain and connected sidechains without requiring centralized support – a glaring issue with sidechains like Roostock and Liquid today.

However, BitMEX claims the technicals of the peg-out mechanism are “controversial” and contain “many significant weaknesses.”

Specifically, the proposal puts miners in charge of responsibly redeeming users’ peg-outs every three months. This gives miners the power to steal user funds if over 50% of the network’s hash rate conspires to do so, while also being very slow for users.

BIP 301: Blind Merged Mining

Meanwhile, BIP301 would unlock “blind merged mining” for sidechains. Regular merged mining is when a miner mines for two or more blockchains at the same time, leveraging the same hashing algorithm to score fees on both chains.

While most miners run some form of merged mining today, they must explicitly choose to run the sidechain’s software. Blind merged mining dispenses with this need by letting a third party run the sidechain, receive its fees, and later pass on those funds to miners as BTC transaction fees.

While BitMEX said this proposal may introduce complexity to Bitcoin, the benefits it provides could outweigh that complexity.

3. Bitcoin Miners Are Solving AI’s Computing Power Shortage

Over the past two years, Tesla has been building a supercomputer called Dojo. It’s able to process a vast amount of video data that will help improve the company’s self-driving technology.

Sam Altman is the CEO of OpenAI and the creator of ChatGPT. He recently testified to Congress that the GPU shortage is hurting the chatbot’s ability to perform its tasks. In fact, it took about 10,000 to 20,000 GPUs just to train ChatGPT on the enormous datasets it needed to process so it could respond to users’ questions and comments. And OpenAI still needs roughly 30,000 more GPUs to scale up ChatGPT.

Tech giants such as Microsoft and Amazon also say they’re having trouble getting the GPUs they need. In short, without enough GPUs to run these complex machines, AI can only process so much and progress so far.

So, if we want to implement AI in everything from powering self-driving vehicles… to things like advanced diagnostics and advancements in medicine… to leveling up the real-time utility of generative AIs… It’s clear we’re going to need a lot of computing power.

And a solution to this computing power shortage has come from an unexpected source – bitcoin miners.

Bitcoin Miners Are Crushing It This Year

Bitcoin mining stocks have been crushing it lately. So far this year, the top five bitcoin mining stocks by market value are up an average 342%. That compares with a 16% gain in the S&P 500.

And part of that market-thumping return is down to the role bitcoin miners are playing in the scaling out of AI.

Without getting too in the weeds, bitcoin mining involves solving complex mathematical puzzles to validate transactions on the bitcoin network. Think of the miners as the network’s auditors. They make sure all bitcoin transactions are legitimate. In return, miners earn a reward of 6.25 bitcoins for each “block” – or group – of transactions they verify.

This mining process involves running racks of GPUs that can do trillions of calculations per second. Now, these mining companies are repurposing their older GPUs to help perform computations for AI.

From Mining Bitcoin to Powering AI

Hut 8 recently bought five data centers in Canada. And it filled them with its older GPUs. Instead of mining for bitcoin, they’re now performing visual effects rendering and machine learning for clients in the gaming and entertainment industries.

It’s also delivering computing power to firm XYZ AI to support the text-to-graphic features of its platform, which it uses to create 3D imagery for its video games. Hut 8 Mining earns about 24% of its revenue from this new computing segment. And it’s not the only bitcoin miner profiting from the AI boom. Mining company Hive Digital Technologies has also begun offering its services to companies in need of computing power to run their AI apps.

The “AI Coin” Solving the GPU Shortage

Bitcoin miners’ profits go up and down based off the price of bitcoin. That means some bitcoin miners could see gains as high as 875% from current levels should the price of bitcoin reach $120,000 in the next two years… as colleague Teeka Tiwari believes.

But while they’re waiting to reap these rewards, AI computing contracts are providing bitcoin miners with stable, recurring revenue. By adding these computing services, bitcoin miners can protect their revenue stream in environments where bitcoin’s price is falling. That will help lower the risk of investing in these miners.

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Harvey CHEN

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