TL;DR:
- Mining pools are becoming increasingly centralized and have been shown to censor the network. This is an escalating issue.
- Loka plans to create a fully decentralized Bitcoin mining pool on ICP. This will be open-source, community-owned, resistant to censorship, and offer payment to miners in ckBTC without a minimum payout threshold.
- It will also feature ckBTC staking. Participants can stake ckBTC to provide liquidity for mining rewards and earn additional BTC from the mining pool fees, paid out whenever the pool finds a new block.
Background
Loka is currently developing a trustless P2P Bitcoin mining protocol that connects BTC miners with retail investors.
More about our project can be found in this post:
Initially, we planned to build our own mining pool after launching our platform. However, following recent developments in the Bitcoin mining space, we are considering fast-tracking the mining pool’s development before launching the platform.
Mining Pool in a Nutshell
Every 10 minutes, a new block is created in Bitcoin, and the miner who finds the block receives a mining reward of 6.25 BTC (or 3.125 BTC after the halving in April 2024) plus transaction fees. The larger your share of the network’s hashrate, the greater your chance of success.
In essence, it’s like a lottery. Hashrate equals tickets, and finding a block equals winning the prize. The more hashrates you have, the higher your chances of winning.
How It Works
A mining pool consolidates hashrates from various Bitcoin miners into a single “pool.” When this pool finds a block, the mining reward is distributed pro-rata based on each miner’s contribution, usually every 24 hours.
Since blocks are created at 10-minute intervals, this means there are 144 new blocks every 24 hours. Statistically, a mining pool needs to consolidate approximately 0.7% (100%/144) of the world’s total hashrate to earn a reward daily on average.
This is why smaller pools like Ocean, with only a 0.07% hashrate contribution, had only find 2 new blocks in the last 3 weeks. Statistically, they are expected to find 1 new block every 10 days.
There are different types of mining pool payout methods (PPS, FPPS, FPLNS, TIDES, etc.), but the bottom line is that miners seek fair and transparent payouts, preferably every day.
For mining pools with more than 1% of the total hashrates, the payout scheme doesn’t significantly impact daily payouts. However, for pools with less than 0.7% of the total hashrate, the Full Pay Per Share (FPPS) method with typical fees of 2-4% from the mining reward is the most viable. This method ensures that connected miners are paid daily, regardless of whether the pool finds a new block.
The State of Existing Mining Pools
- Mining pools are becoming more centralized, with the two largest pools accounting for over 50% of the total hashrate. It’s a growing problem
- Existing pools are subject to specific jurisdictions and none are fully decentralized:
- AntPool now requires KYC.
- Ocean, touted as a “fully decentralized mining pool,” does not include ordinal transactions, effectively censoring them.
- F2Pool has acknowledged filtering transactions at times.
- Smaller miners often don’t receive daily payouts due to thresholds, typically around 0.005 BTC — Ocean’s threshold is even higher at 0.01 BTC. This means miners with fewer than 40 ASIC machines might have to wait several days or weeks for their payouts.
What a Decentralized Mining Pool on ICP we imagine would look like:
- No minimum payout, with payments in ckBTC.
- FPPS payout scheme including 24-hour average transaction fees.
- Fully decentralized:
- Full Bitcoin node running on ICP canisters to access the mempool.
- No KYC, no censorship, not bound to any jurisdiction.
- Open source.
- Community-owned with ckBTC “staking” feature
- Anyone can provide liquidity for mining rewards in the pool using ckBTC
- Low mining pool fee of 2%, mainly redistributed to ckBTC liquidity providers when a new block found.
- The team may bootstrap liquidity and initially charge 0% fees to attract BTC miners and encourage adoption.
- Reward tokens will be issued to participants, both liquidity providers and miners, based on their contributions.
If you like this idea and would like to contribute, please post a comment!