According to a recent government report, as of 2015 and in Sichuan alone, over 9.68 bln KWh (accounting for 14.93% of the annual output) went wasted. The report attributed the situation to a combination of factors, ranging from overinvestment in the hydropower sector and obsolete power transmission infrastructure to slower-than-expected growth of China's economy.As grave as it may sound, the report suggested there is no immediate solution on the horizon.
With the advent of Bitcoin and other Proof Of Work ledger currencies, a global arbitrage opportunity emerged that enables people with access to such low-cost power to monetize quickly. The outcome is a booming Bitcoin mining industry in China’s western provinces and hardware manufacturers’ meteoric rise from no-name startup to billion-dollar companies. The consistent profitability of mining led to numbers expanding. In comparison, mining is shrinking in many other regions due to their failure to keep up with the cost pressure imposed by the Chinese counterparts.
While some may argue that Bitcoin is designed to be borderless, the fact remains that the Bitcoin mining boom in China gave the Chinese community an “unfair” advantage, leading to criticism of "Chinacoin" and worries that over-concentration of hashrate in one geological location posing a threat to the entire network.
SinoHash is created with the vision to remove such barriers to give global users equal access.
During the past year and half, I had been involved first-hand with building and managing bitcoin mining data centers and witnessed that the construction process was maturing and getting standardized, with new innovative ways introduced to further increase the cost-effectiveness. In most parts of the country, you can reliably count on investing USD 20k for a farm of one-megawatt capacity, which is hard to imagine in other regions.
SinoHash Datacenter was built in November, 2016, with an initial investment of RMB 13,2000. It chose to locate in Shimian, Sichuan province. As usually is the case, it selected the model of partnering with a hydropower station. The electricity price that it pays the hydropower station is RMB0.23 per KWh. The company intended to sell hosting service for an all-included price of RMB0.30 per KWh in winter and RMB0.28 per KWh in summer. While the price is not the cheapest, the intention was to use this project to gain a foothold in the region and find cheaper alternatives.
The image of Satoshi-era bitcoiners sitting at home with laptop mining happily humming along is now a remote idyll. With the advent of ASICs, mining quickly degraded into an oligarchy, where a few big companies wielded great amount of influence, leading to the outcome that large miners with deeper pockets are squeezing small home miners out of the game.
Bitcoin is designed to work best when participants’ interest stays disparate to some extent. Ever since GHash.io made headlines, concentration of hash power to a few has been a concern. With the rise of Chinese miners and Chinese pools, this situation only gets worse.
While it is anyone's guess, a recent miner conference and many other developments illustrates that one company can leverage its market position and cultural affinity to influence the majority of mining community and can potentially elbow Bitcoin towards a new direction detrimental to the best interest of the majority of stakeholders.
The road to ruin is paved with examples of a few demagogues goading the misguided and misinformed apathetic crowd to pursue their own often disastrous agenda. Bitcoin is a machine that can be attacked and manipulated, and its security model works best when participants' interests remain uncorrelated and diverse. That a handful big companies, or one single company, takes Bitcoin hostage - Benevolent dictator or not - should be avoided at all cost.
How to avoid it? The answer is by diminishing their source of income through fair competition.
SinoHash is also created with the hope to bring good name to the industry of cloud mining.
There was once a time when hardly a day went by that we didn't hear about someone being separated from his coins because he made the mistake of investing in a cloud-mining service.
Even today when you search the Internet, you frequently see alarmist posts such as this, in which the author claimed:
In my opinion, most of these companies are just Ponzi schemes in disguise and the few who may be legit.
There is no denying that some were scams from the beginning. They made false claims about their hashrate, used stolen photos and lured investors with unrealistic expectations.
But some slowly degenerated due to their lack of transparency created the conditions allowing operators to do so. Some couldn’t resist the temptation to draw more investment than they could possibly make use of to generate a positive profit. Eventually they were compelled to resort to using new users’ funds to pay the old ones’, i.e. a Ponzi scam.
The solution requires no technological breakthrough but common sense.
The following is a description of the model that is proposed by SinoHash:
- Users own their mining hardware as opposed to shares, contracts or other form of abstract instruments - whose underlying value the users can't reliably verify.
- Users entrust this hardware to a hosting service, which acts as a custodian responsible for ensuring the physical security of the hardware and their continuous operation.
- Users pick their trusted mining pools. They then set up accounts on the mining pools and instruct the hosting service to point the miners to the accounts.
- Users will be able verify if their miners are running. And they will get exactly they paid for.
- The hosting service makes money by providing a service. It is incentivized to find cheaper electricity, which is the most reliable way to cut cost and increase its margin.
In the entire process, the mining operators would unable to touch the users' funds, thus removing the risk that it misuses those funds. There is only one way that the operator could cheat its customers - that is by absconding with the hardware. In that case, the operator would not only ruin his business reputation and social life, but would without any ambiguity face criminal investigation and prosecution.
A Social Enterprise At Heart
A social enterprise is defined as "an organization that applies commercial strategies to maximize improvements in human and environmental well-being—this may include maximizing social impact alongside profits for external shareholders." If you replace "improvements in human and environmental well-being" with "improvements in Bitcoin decentralization" then I think the SinoHash project is a perfect example.
SinoHash is intended to be low-profit. Part of the reason is that like all startups, it is most critical to establish credibility and trust from users in its early stage.
Part of the reason is practical - like all startups, it is most critical to establish credibility and trust from users in its early stage.
While it is for-profit, its motivation is not purely pecuniary but having a mission-impact and enhancing the community through innovative creation.
SinoHash thus undertakes to stay a low-margin business. This serves the purpose of giving users the best chance to profit and helping users to support their own favourite forks while mining profitably.
The founder also vows to take a "survival" salary of RMB6,000 per month, and dedicate the rest of revenue, had there been any, to an Insurance Fund, which will be used to pay users in case their miners failed to ROI.
Consistent with this vision, SinoHash will also undertake to set up an Auditors' Board, made up by reputable members of the community who will regularly visit the facility and audit its operation.
As such, SinoHash will refrain from ambitious ambitions in order to be highly profitable or influential or the next Google or Facebook. Such grand vision is often just egomania in disguise, and SinoHash's mission is to bring profitable mining back to the community to the community, especially those under-privileged who so far has lacked access.
The first step, build a one megawatt mine in Ya'an, Sichuan - End of Nov, 2016
Incorporation - End of Dec, 2016
Launch website - End of Nov, 2016
Build a larger farm of 20-30 megawatt - End of July, 2016