Slush Pool Interview Part 2 – Bitcoin Block Subsidy, Proof-of-Stake, Mining Pool Business Model

The Slush Pool team (Edward Evenson, Pavel Moravec, Jan Capek, and Ondrej Seifert) join John Lee Quigley of MinerUpdate for an interview

This is the second part of our two-part interview series with Slush Pool. Check out Part 1 for a discussion on BraiinsOS, Stratum v2, and Bitcoin security risks. This interview took place in Chengdu the day following the Global Mining Leaders Summit.

In the second half of this interview, we continue our discussion on potential risks to Bitcoin with a focus on what will happen when the block subsidy diminishes. We analyse the proof-of-stake model for establishing consensus and also talk about how the mining pool business will evolve.

Key takeaways from part 2;

  • The block subsidy diminishing poses a risk but Bitcoin becoming the settlement layer for large monetary transactions would pay for the mining infrastructure.
  • Large amounts of hardware becoming obsolete as a result of the halving poses a risk to the Bitcoin network by allowing attackers to accumulate enough obsolete hardware to attack the network.
  • The fundamental flaw with proof-of-stake is discerning what the true ledger is as a newcomer to the system
  • Mining pools are transitioning towards offering more services for their customers, catering to needs such as financial services and hardware.

How will the Block Subsidy Diminishing Impact Bitcoin?

John Lee Quigley (JLQ) – Is it as an issue that the block subsidy is going to keep decreasing given its importance for incentivising miners to secure the network? Price or fees need to rise to compensate but this is not guaranteed.

Pavel Moravec (PM) –

In the long-run, I am slightly concerned. I don’t know how the economics will play out.

I don’t see it as a problem in the short-term. It should not be an issue over the next two halvings.

And if it results in Bitcoin not being used anymore, we can look at it as a failed attempt to create a global decentralized money. My feeling is that Bitcoin is going to be used more and more and the fact that it may become the base settlement layer for large money movements would pay for the mining infrastructure.

But I don’t know how the economics will develop. I would believe that the price will help a lot. And second-layer solutions will still need to be rooted in the base layer.

If Bitcoin is going to be used more, you have to have the base layer transactions. It should be okay but I am slightly concerned.

Jan Čapek (JC) –

If Bitcoin fails and you imagine what this means, I would assume that it means we are probably not able to create a decentralized permissionless money.

The halving should start being calculated into price soon. If not, most of the investments done into the hardware now will make older hardware obsolete. This is the natural cycle. It will be very interesting to observe.

It all relies on people appreciating the scarcity of Bitcoin as an asset. If people don’t appreciate it, then it’s going to fail.

PM –

If there’s not a large price increase, a lot of hardware becomes obsolete with only some of the miners remaining profitable. In this case, you’re increasing the chance that somebody can acquire all this hardware and pay for the electricity to attack the network.

In this case, it becomes a matter of money. Currently, the Bitcoin network is a matter of chips. The whole world strives to increase hashing power.

There is competition and I strongly feel that no government can be faster and more efficient than what private companies are currently doing. But once enough hardware becomes obsolete, then it becomes more a matter of money.

The only other matter is electricity infrastructure as we would have to obsolete enough mining farms for this infrastructure to be acquired to operate the hardware. But this is all related to there not being enough money for miners to run their operations from the subsidy and fees.

Ondrej Seifert (OS) –

We are talking here about the technical part of the question but we are missing the other part. We need retail to step in to start using the network.

We need the applications and infrastructure so that more people can get on board to use Bitcoin itself or layers built on top of it. To get better traction, we need to give people a reason to use it.

Proof-of-Work versus Proof-of-Stake

JLQ – Pavel, I overheard you make arguments against proof-of-stake yesterday at MinerSummit. Can you recite those?

PM –

I’m not an expert on the subject but I’m not convinced it’s a good idea. One of the arguments I can see against proof-of-stake is that it feels like a scheme which makes rich people even richer and the poor even poorer. The only requirement to create wealth is to already have wealth.

We can see a lot of problems in societies all over the world with systems like this. It creates a lot of tension between different members of society.  

Proof-of-work doesn’t have this feature so strongly as proof-of-stake has it. There are also technical arguments and I am not convinced that even on a security or technical level that proof-of-stake is solved. 

I tend to understand technical things when I’m facing a new concept but nobody has been able to give me a good explanation for why I should believe this is a good idea. I don’t think this is a system that could be easily trusted by people.

Proof-of-Work is simple. It can be explained to most people with basic technical understanding.

That is part of its value. You can understand it to the basics. Bitcoin has it. Proof-of-stake systems don’t.

JLQ – I would completely agree. One argument I can see is the real world energy cost which goes into block validation in proof-of-work.

Nic Carter wrote a blog post earlier this year analysing settlement assurances in decentralized payment networks. When you send a payment across a centralized network, it’s either settled or not settled.

But in decentralized payment networks, the settlement is a function of time where different factors play into the transaction being considered more or less settled. The costliness of putting the transaction into the blockchain was noted as the most important variable impacting how settled the transaction can be considered to be.

With Bitcoin, miners accrue huge expense to place a transaction into the ledger. For example, although a transaction may be four blocks deep in the Litecoin network, miners have not accrued near as much expense as miners that have placed a transaction one block deep in the Bitcoin network.

Any ideas or comments related around that concept?

Edward Evenson (EE) –

I believe this reinforces Pavel’s point. With proof-of-work, we have real-world examples that it can work.

Proof-of-stake simply isn’t proven yet. There aren’t any good models out right now.

If you do stake, it means that you are already wealthy so the system that is created under it reflects the world we already live in. If you look at the Ethereum network, 90% of the ether is held in very few addresses. In the US stock market, roughly 10% of the population owns 85% of the US stock.

The proof-of-stake model is not introducing anything new as a system. We don’t have any pure proof-of-stake systems implemented now.

But we have experienced delegated proof-of-stake systems and we have seen empirically that this incentivises the creation of cartels. This is clearly the case in an example like EOS.

It’s a bunch of vote sharing between the block producers who are people who know each other. There’s not a whole lot being created by these block producers.

They are just ensuring that they remain in the top 21 so that they can keep receiving the rewards. The only example I have seen where I think proof-of-stake could potentially work in the future would be something like Decred where proof-of-stake handles the governance side of things while proof-of-work is what is propagating the blocks.


In the case of Bitcoin or any POW systems, it is easy to see what is necessary to undo a transaction. You can easily calculate the cost and so you can easily calculate that it’s very improbable.

Being able to do this, you can wait long enough so that your security requirement is fulfilled. This can easily be calculated for any POW chain.

For Bitcoin, the amount of money needed for amending a block is tremendously larger than for other coins. But again, it is about the simplicity of POW which allows these security calculations for anyone.

In the long-term, it is important that people understand the system on this basic level so that they can reason about this. Otherwise, I don’t think large scale adoption would ever happen.


In the proof-of-stake system, the fundamental problem is if I am a newcomer to an existing proof-of-stake system, I cannot tell what the ultimate source of truth is. I would have to call the founders and they would tell me that this is the hash of the genesis block.

I can then investigate the blockchain but I have no way of verifying that they had to put in some effort to generate that blockchain. In the case that the stakers are adversaries and they’re working on an alternative blockchain, you would not know of this and they would present their alternative blockchain as the truth.

As a newcomer, you would be completely confused. As a staker, they can generate as many blockchains as they like.

Some of the systems try to work around this by penalizing stakers if they work on a fork. But designing a system like this has never been proven to be safe or secure.

This is the fundamental problem. You cannot tell as a newcomer to the system. If you put the rest of the problems aside, what is the truth? What is the true transaction history?

Somebody can easily present you an alternative one. With Bitcoin, if somebody presents you an alternative blockchain, you can verify, how much effort was used to generate such a blockchain and you can make some estimates based on this.

Mining Moving Forward

JLQ – I overheard at MinerSummit some comments on business partnerships forming between pools and hardware manufacturers. Do you have any comments on the nature of such relationships?

EE –

Such partnerships make sense if you are trying to develop other business lines. A relationship with any hardware manufacturer is a way to potentially put in orders with the foundries that produce the chips.

This means you can buy the chips at a good price and put together branded ASICs. Because they’re made by a company like Bitmain or Whatsminer, they’re going to be competitive on the market. You could potentially package them with the pool to incentivise people to join your pool.

OS  –

I believe we will see more pools offering more services. They can use the customer base they already have to launch services connected to mining.

EE –

It’s a move to be a one-stop-shop. It’s a move for pools to cater not only to their customers’ pooling needs but also to their hardware needs, and their financial services needs related to mining and Bitcoin.

I believe this is a direct result of the race to the bottom in fees that all other leading pools have participated in. They have backed themselves into a corner in lowering fees to run at cost or under cost.

They’re all scrambling to get the majority of the hash rate. To do this, they had to sacrifice the long-term profitability of their mining pool and their only option left is to expand in these directions. Otherwise, it is not a sustainable business.

JLQ – One thing which became clear to me at MinerSummit is that there is a lot of advantages to mining in China. If miners are always going to source the best deal, could you see hash rate over the next decade concentrating in one region?


After talking to some miners in China specifically, we’ve learned their considering relocating part of their operations overseas. They feel like they don’t have a political guarantee that the business here is going to be accepted by the government forever.

They will try to diversify. The chances that all the hash rate is going to end up in China are not high because even the Chinese farms realise that this is a risky business and the more they have invested, the more it will hurt if the government decides to shut it down.

It is not the case currently but they are already considering hedging against this possibility and doing something about it.

Slush Pool Interview Summary

The fact that Slush Pool was the original Bitcoin mining pool is only one distinction that differentiates their business from other mining pools. While many pools are overtly business-focused, and naturally so, my general feeling after interviewing the Slush Pool team was that technology comes first and business will follow. Their work with open-source technologies, their long history, and their tech-focused team have resulted in the mining pool being a natural fit for miners who resonate with the Bitcoin ideology.

Edward, the Braiins business development director, has informed me that they have never given a discount to a customer in their operating history. With some pools giving customers rebates in the face of intense competition, it is a testament to the market position of Slush Pool that they can maintain their flat 2% fee and continuously rank as a top ten pool.

From talking with the team off-the-record, their technological innovations in the pipeline certainly expand beyond BraiinsOS and Stratum v2. But details of such projects cannot be revealed just yet. We will keep our readers informed with how the Slush Pool projects are progressing along with any new announcements from the team.