Status quo of mining market
The Temptation of the Mining Market
Since the birth of Bitcoin, mining has been one of the most important components of the cryptocurrency industry. Whether it is the PoW mining of Bitcoin or Ethereum, or the newly-emerged PoS (Proof of Stake) mining, or the liquidity mining of DeFi, mining has always been the pivotal component that supports the continuous operation of the cryptocurrency industry.
Mining is not only the most important but also the most profitable sector of the cryptocurrency industry. At present, BTC’s block reward is 6.25 coin per block. Suppose BTC is valued at $18,000 USD each, the annual mining income would be nearly $6 billion. Consider the new coins mined for ETH, suppose it is priced at $550, its annual mining income would be approximately $2.7 billion. Filecoin released around 121.8 million tokens in the first year. If FIL is priced at $30, its annual mining income would be around $3.6 billion. Those three platforms combined would generate over $11 billion incomes yearly. Nevertheless, annual income does fluctuate according to changing market conditions such as price factors and oversupplies. Even so, judging from the current market situation, one must admit that the gigantic mining market is very enticing.
Problems of Cloud Mining
Mining market is very tempting. Many average users want to participate in the cryptocurrency mining industry. However, not everyone has the opportunity.
- High entry barrier for individual miner
For most average cryptocurrency users, the era of individual mining is long gone. The biggest mining cost is electricity fees. For individual users, obtaining cheap electricity is very difficult. Professional custodian facilities are hard to come by. The users would also need to hire professional technicians to maintain the mining machines. Once you want to start mining, uncertainties will come at you one after another. Which token has the highest mining yield? How to switch between different mining rewards? Which mining machine should I buy? Where do I buy them? Which custodian facility should I go to? The list goes on.
The cryptocurrency mining industry is already highly specialized. Under current situation, although there are still numerous individuals who are keen to join the cryptocurrency mining business, most of them would never have a chance.
Since most average users could not go through the trouble of buying the mining machines themselves and finding a mining operator (mining farm) on their own, cloud mining has emerged as a new option. Mining farms calculate their total mining power, divide it into smaller portions and sell them to the users. Users will receive mining incomes proportionate to the percentage of mining powers they own. This business model sounds terrific as it does make mining investment easier for the users. Users no longer need to worry about mining machine purchase, custodianship and maintenance. However, as the time goes by, several underlying issues have emerged to hinder its further development.
- Cloud mining lacks transparency
Since individual users are buying mining power from centralized miners, users have to rely on the miners to obtain information on their effective mining power and the proportion of actual mining power versus purchased mining power. Users often have no option but to trust the miners. This has led to non-transparency in mining incomes and potential economic loss for the participants.
If the non-transparency in mining income only causes a partial income loss, the more serious issue is the total absence of promised payout. Users paid for mining machines and mining power but they never received any income. This will lead to major economic loss for individuals. In addition, the majority of the average users are confused on the definition of ‘cloud mining power’. They are prone to misleading information. Some users purchased the unprofitable Filecoin cloud space instead of the profitable effective storage power because they mixed up the jargon. Many users suffered a loss.
- Cloud mining power lacks liquidity
At present, individual user’s cloud mining power is typically purchased from one specific miner. Trading mining power is very difficult for the users if they need to get liquid capital. They can only sell their mining power to another user who uses the same miner service. The transaction procedure is a big hassle. It is nearly impossible to trade across different miners.
- Cloud mining power has a poor fund utilization rate
After buying cloud mining power shares, users have no other options but to simply wait for mining income. Their assets cannot be utilized in other financial activities. The fund utilization rate is less than ideal.
Decentralized Mining Market
As is explained above, if we want to make mining accessible to everyone, first we would have to solve the problems of entry barrier, transparency and liquidity. So, what is the solution?
Since mining activity contributes to the cryptocurrency industry, crypto technology also provides potential solutions for the mining market. One of the most significant solutions is decentralization. Decentralization has the potential to reform the cloud mining market with the helps from smart contract, DAO governance and NFT.
This is what DMEX is trying to do. DMEX endeavors to revolutionize the mining market with decentralized models, so as to improve transparency and liquidity of the current cloud mining power market.
More details about DMEX will be elaborated in next article.
Official website: dmex.finance
Telegram: DMEX Chat