Mining in China versus Overseas, Bitcoin versus Bitcoin Cash, and the Mining Pool Battle for Dominance
In November 2019, MinerUpdate visited Poolin’s HQ in Beijing and interviewed Chief Operating Officer and co-founder Chris Zhu. Chris formerly worked at BTC.com with fellow Poolin co-founders Kevin Pan and Tian Zhao before the trio departed to set up Poolin.
Poolin surpassed BTC.com in the Bitcoin mining pool rankings this year and has largely maintained their first place position since. We talked with Chris about what Poolin did to accomplish their dominant position and how they plan to expand their business moving into 2020.
Chris detailed the suite of features offered by Poolin and what advantages their customers by choosing Poolin. We also covered a number of interesting topics not specifically related to Poolin in the interview which include:
- Bandwidth issues faced by miners in Sichuan’s
mountainous regions
- Chris’s thoughts on recent
developments in the Bitcoin Cash network
- How mining in China will change in
2020
- China’s plans to launch their own
digital currency on blockchain technology
- Could the RMB overtake the USD as
the world reserve currency?
Poolin’s Dominance & 2020 Plans
Poolin is
now number one in the Bitcoin mining pool rankings. Congratulations. What did Poolin
do during the year to achieve this?
We invested
in people to improve our product experience. We figured out a way to make our
clients feel better.
For example, we have the 7-11 plan where our customer support can always be found on WeChat between the hours of 7 am to 11 pm. Other pools are still lagging behind when it comes to user experience. The most important thing is how our users feel.
We are also strongly focused on offering the best basic technology. Everybody in China knows that Poolin has the best basic mining pool technologies. The BTC.com open-source mining pool code was written by Poolin co-founder Kevin Pan.
Editor’s note: We also talked with the NovaBlock team about Poolin’s rise to number one in the Bitcoin mining pool rankings as NovaBlock has also researched this question. NovaBlock co-CEO Yuki Sun proposed that Poolin’s Chinese meetup tour significantly boosted brand awareness with Chinese miners while Poolin’s mobile application also resonates strongly with the mining market in China. From MinerUpdate’s experience, Chinese consumers are extremely mobile-focused, significantly more so than Western consumers. Poolin’s mobile app is extremely well-designed and provides versatile and valuable functionality to users. Poolin also benefitted from the app appearing on Chinese state-owned television channel CCTV when an individual being interviewed was using the Poolin application.
What are
the specific benefits for miners using Poolin’s technology as opposed to the
technology of another mining pool?
Greater
efficiency and lower risks. Operating a mining pool is a high-risk business. If
there is a bug in the code of a mining pool, in most cases, the miner won’t
know and the mining pool operator won’t be aware.
The bug could
cause loss of hash rate, a higher incidence of orphan blocks, as well as other
risks. The mining pool may believe that miners are executing block withholding
attacks. Poolin’s team of developers is extremely familiar with mining pool
technology so such risk is minimized.
In terms of efficiency, miners can benefit from faster block propagation. Kevin Pan spent a lot of time at Bitmain researching how to minimize block propagation times.
Poolin
has also been expanding internationally. You have opened a Berlin office and
hired Alejandro De La Torre. What are Poolin’s plans outside of China?
We have
recently completed a European tour and we plan to do a North American tour. The
Poolin team loves to meet miners, whether it be online or offline. We always want
to talk to miners face to face. We are essentially going to duplicate our
Chinese marketing strategy to overseas.
For the Western
mining market, it is more efficient to focus on marketing rather than direct
sales. Western miners are widely spread. The hash rate of a single Western
miner is also typically smaller than a Chinese miner so it is not as worthwhile
to invest a lot in direct sales and business development in the Western mining
market.
In China,
one-on-one sales jobs are efficient because there is a lot of hash power in
every city. Chinese miners have their own circles and it is important to be
active in these circles. Roundtable discussions are regularly held. It’s
certainly different than the Western mining market.
Are
there any other business lines Poolin is considering?
We will
venture into a business around mining farms. We are considering building our
own mining farms or managing mining farms for clients.
Running a mining farm is much more profitable than running a mining pool. If a mining farm has the same market share as a mining pool, the mining farm will be roughly twenty to forty times more profitable than the mining pool.
What would be the specific value-add for a miner to have Poolin manage their mining farm as opposed to managing their own farm?
Poolin has
valuable resources in terms of clients. Mining farms regularly ask me to help
them find miners for hosting and I always help.
Roughly 70%
to 80% of mining farms in China provide hosting services. The most important
benefit is helping these mining farms fill their operations with mining rigs
from the first day.
Poolin’s Suite of Features
At the
New Era Mining Summit, Kevin Pan introduced a new mining protocol BUMP. When
can we expect this mining protocol to be released?
It can be
expected next year.
Poolin
also has Smart Agent which is a Stratum proxy and is noted to increase
efficiency for miners. How does it increase efficiency?
The logic of Smart Agent is to compress data reducing the bandwidth required. Mining in China is not like mining in developed countries.
There are many mining farms in the mountains of China with bad internet connection. This problem also extends beyond China with mining farms in South-East Asia, mid-Asia, and Russia also facing this issue.
From
speaking with miners who are operating in mountainous regions or regions with
bad internet connection, do you find that this is a major issue?
This is a
major issue. In some extreme situations, there are earthquakes and mudslides. In
Sichuan, Yunnan, and other parts of Southwest China, earthquakes and mudslides
are regular occurrences during rainy season.
Once this
happens, there is no cable internet. There is only 4G and 3G. In this case, proxies
must be used. I believe circumstances have improved over the past two years.
But before two years ago, there were several mining farms in the Sichuan mountains that had roughly 1 Mbps bandwidth. This is very low. If you have more than one hundred mining rigs, this bandwidth is not enough.
Poolin recently announced the Auto Switch feature where miners can automatically switch between mining Bitcoin cash and Bitcoin based on which is more profitable to mine at any given time. Do you see any risks to Poolin with some losses occurring between the changeover?
There will be no loss. When the mining rigs switch, no mining shares will be wasted. We will not be switching the mining rigs to a new Stratum server. The mining rig will simply transition to mining on a different network. The only loss that can occur is when we sell BCH for BTC but no losses will be incurred to the miner using the Auto Switch feature. The feature will only add extra profitability.
Bitcoin versus Bitcoin Cash
Speaking of Bitcoin Cash, there has been a lot of strange activity on the network recently. At one point, 60% of the network was being mined by an unknown entity and there were over three hours when a block wasn’t mined. Firstly, what do you think the reason is for this? And secondly, what do you think of this generally?
At the moment, miners mining Bitcoin Cash using our Auto Switch feature will be doing so anonymously. Some of this unknown hash rate is attributable to Poolin. There are many other mining pools offering a feature similar to our Auto Switch feature and some of the unknown hash rate is likely attributable to them. For example, BTC.top offer such a feature.
Currently,
there is over 20 PH/s mining on Bitcoin with an unknown source. When this hash
power switches to Bitcoin Cash, most of it will remain unknown so this likely
counts as another source. I believe what has happened is okay for the Bitcoin
Cash blockchain. No harm has been done.
Can you explain this WeChat post?
This is a bad translation. There is a Bitcoin Cash supporter Chang who stated in an interview that the anonymous hash power is from Poolin and that Poolin will harm the Bitcoin Cash network.
My reply to him was: “What? Chang believes Poolin mining pool is against BCH. Not at all. Please take a look at the Poolin homepage. Poolin mining pool supports BTC and BCH.”
Chang said we don’t support BCH and I said we do support. We support BTC, BCH, and BSV. We support all the cryptocurrency networks that we provide mining pool services for.
There is a concern
that Poolin will harm the Bitcon Cash blockchain but Poolin have already
announced that we will not do a 51% attack on any blockchain.
There are
many BCH supporters that believe Poolin is their enemy. They think that Poolin
will harm the Bitcoin Cash blockchain so we needed to announce that we will
never harm BCH.
Sometimes,
I say that Bitcoin Cash is not as good as Bitcoin. I can suggest this and some BCH
supports will think I am doing an attack on BCH.
But I am
just saying what I believe. If you don’t believe this, you can just as easily
state BCH is better than BTC.
How has
your experience with the BCH community been?
I believe
the BCH community in China are too anxious. Western BCH supporters seem not as
nervous.
I see Western
supporters publish tweets such as “don’t worry” in response to the peculiar
activity on the network. Western supporters think all the anonymous hash power
is strange but they don’t think this is a danger.
In China, many
BCH supporters fear that BCH is dead. I think this is ridiculous and I believe
it is even more ridiculous when they fear that Poolin is harming BCH.
We just
switched some hash power to mine on the BCH blockchain. How can we harm this
blockchain by mining on it?
This problem
is nothing to do with Poolin. This problem is to do with the BCH blockchain and
the BCH community.
What do you think about the long-term prospects for Bitcoin Cash?
I can’t
comment on how the network will perform in the long-term as I know nothing
about the BCH development community. But in terms of price, I believe BCH will
continue lower and lower in terms of its BTC value. It’s a one-way trip.
Moving
into 2020, how do you think the upcoming halving will impact the Bitcoin mining
environment?
I believe
nothing will happen initially. In the few days after the halving, I believe many
old mining rigs will shut down and after that, I speculate Bitcoin price will
go up. Bitcoin price comes is not from cost. It comes from demand. But many
people don’t believe this.
My personal opinion is the halving fundamentally does not affect the price of bitcoin. But everybody thinks the event will make bitcoin price go up. So the price must go up.
Mining & Blockchain in China
In 2019, we have seen a lot of places around the world become popular for bitcoin mining. There has been a lot of news about Iran, Russia, Canada, and Kazakhstan. In 2020, Do you believe we will see hash rate move out of China or do you believe China’s hash rate dominance will remain around the same?
There are two angles. When we mention mainland China, the hash rate dominance will definitely be lower. And it will continue to go lower and lower. Because many Chinese miners are moving their mining rigs overseas.
I believe more
than half of the hash power in Iran has come from Chinese miners. More than half
of the hash power in mid-Asia is from Chinse miners. A lot of hash power in
Russia has come from Chinese miners. Now, Chinese miners are looking to mine in
North Europe and in North America. These regions have become attractive because
of the low power cost and the low temperature.
The other
angle is Chinese miners are becoming increasingly global. The mining industry
is not like any other industry in China. Chinese mining has nothing to do with the
national government.
It is incorrect to think that Chinese miners have a relationship with the Chinese government. There is a lot of misunderstanding in the Western world about Chinese mining. Sometimes, it sounds like everyone works for the Chinese government.
The reality
is not like this. The mining industry has nothing to do with the government.
The mining industry in China is similar to industries in the West. It’s a free
market.
My
understanding of mining in China is that it often depends on developing
relationships with local governments. Is this accurate?
This is correct but it’s not a very strong connection. At the moment, I believe the relationship between miners and local governments is very poor. It is not like other traditional industries
Once there are local government policies, local government will abandon these miners. Miners know this. In response, they always move around. They used to move around between Chinese provinces. Now, they are moving around between countries. They are moving between Russia, the Middle East, Iran, and China. Miners are only loyal to their interest. They will never be loyal to any government.
And the
NDRC recently removed Bitcoin mining from the list of industries it plans to
eliminate. That would seem like a positive development for mining in China.
It’s similar
to an endorsement from the government. Xi Jinping also made a public endorsement
of the blockchain industry. After that, crypto mining was removed from the list
of industries to eliminate.
This is a positive development for mining in China but it is not for everyone. Some small miners will quit because many big players are coming. There is always intense competition in the mining business. Competition in hash rate. Competition in mining rigs. Competition in energy. I don’t think this is good news for small miners.
What do
you think of China’s plan to launch their own central bank digital currency?
They have been developing the digital currency electric payment project (DCEP). The technology is similar to a subway card. This technology is widely used in public transportation. DCEP is like an advanced subway card.
One
function which was mentioned was double offline payments. This means the payer
and the receiver can both be offline and they can make a payment.
The central
bank mentioned that DCEP might one day be built on blockchain technology. I
believe there will be a DCEP blockchain because there is a strong motive for
the Chinese government to launch this is to promote RMB in other countries.
They want the RMB to have the same situation as the USD. If you want to achieve
this, DCEP must be a blockchain.
Would
you foresee the RMB overtaking the USD as the world reserve currency?
I would not suggest this. But there are many countries which are more friendly with China than the US. People in these countries prefer RMB to USD. And many even prefer RMB than their own fiat currency.
Thanks to
Poolin for hosting MinerUpdate in their office and taking the time to do this
interview. We will be staying in touch with the team to keep our readers
informed about how their business evolves in 2020.
