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Bitcoin’s economies of scale make it harder to get involved in mining

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  • Bitcoin’s constant deterrent towards true decentralization can be attributed to the centralization of mining, with several people expressing concerns over mining sector concentrating in China in particular. A move taken to make mining more decentralized was made by Blockstream – a bitcoin and blockchain technology firm.

Unveiling Blockstream mining and pool in August 2019, the blockchain firm revealed that they had started Bitcoin mining operations back in 2017. The official blog post stated the reason being:

“[…] parties involved in ASIC manufacture, hosting, and pool operations were becoming a centralizing force and holding back Bitcoin from reaching its full potential. Since then we have scaled up […] expanded our service to provide hosting to clients that include the Fidelity Center for Applied Technology and LinkedIn co-founder Reid Hoffma.”

Speaking on the topic in an interview with Brave New Coin, Samson Mow – Blockstream CSO – stated that the thesis behind this initiative was that “everybody should be mining,” particularly companies in the Bitcoin space.

“It doesn’t really make sense to not be involved at some level because you have to secure the network, somebody has to secure the network. So either you’re outsourcing that completely or you’re taking part in the security of the network which is what mining is.”

Mow went on to state that the reason why the company stepped into the mining game was the “threats of attacks,” with mining pools and miners calling for a Bitcoin fork. He stated that this threat could be mitigated with Bitcoin companies and users controlling a certain amount of hash rate, adding that their mining initiative contributes to this.

“it’s always going to be hard for people to get involved in mining just because there are economies of scale, for setting up a large operation, being able to negotiate power deals, and just getting that infrastructure piece but the long-term goal is that we would be able to sell hosting to end-users with a few machines […] we would host that for them […]”

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Bitcoin Plunges to $9,500, $45m BCH SIM Swap, IRS Focused on Cryptocurrency

Another week, another round of Crypto Tidbits. Wow, the past seven days have been quite the trip for Bitcoin, to say the least. After peaking at $10,500 last week, the price of the leading cryptocurrency plunged to $9,700, bounced to $10,300, then took a few hours to crash from that level to $9,250, liquidating hundreds of millions worth of leveraged positions in the process.

The weekly data has echoed Bitcoin’s questionable performance. Per data from Coin360, BTC is down 2.6% in the past week. Altcoins, however, (save for Ethereum and Litecoin and a few other projects) have fared even worse: for instance, the two leading Bitcoin forks are down over 10% apiece and XRP has shed 10%.

Aside from the tumultuous market, the underlying cryptocurrency industry saw a relatively productive week, with there being a number of news stories showing the growth and adoption of these technologies, though others casting light on issues in crypto.

Related Reading: Crypto Tidbits: Bitcoin Slides Under $10,000, JP Morgan & Ethereum, and the US’ Cryptocurrency Crackdown

Bitcoin & Crypto Tidbits

  • Coronavirus May Push China to Launch Crypto, Says Ex-Banking Official: Per an article from China Daily — a newspaper owned by the Publicity Department of the Communist Party of China — Lihui Li, a former president of the Bank of China, said that the coronavirus epidemic unfolding will likely accelerate a national digital currency or national crypto. Li purportedly added that a digital currency from the PBOC is likely to benefit retail businesses by decreasing costs and increasing the efficiency of transactions. This was echoed by Fan Yifei, deputy governor of the People’s Bank of China. He said at a news conference held on Saturday that the central bank is going to accelerate its work in the mobile payment field. Bitcoin was not mentioned by these authorities.
  • Bitcoin Fixes This: Danish Bank Introduces Negative Interest Rate: Bitwise’s Hunter Horsley recently shared the below image, showing that clients of Danish investment bank Saxo Bank will soon be subject to negative interest rates. All clients holding cash in EUR, CHF, or DKK will be subject to an annual rate of 0% to -3%. This means that if you’re in the worst bracket of -3%, a $10,000 deposit will see you lose $300. Saxo Bank, backing this decision, cited the European Central Bank’s decision to lower its policy deposit rate to -0.5% to stimulate the economy. Many see Bitcoin as an alternative to cash accounts because some suggest it has store-of-value properties, offering no yield but being a disinflationary asset whose value is mainly derived from scarcity.
  • Coinbase Becomes Visa Principal Member: Announced in a blog post published Wednesday, Coinbase has become the ” first pure-play crypto company to be approved as a Visa principal member.” This means that moving forward, Coinbase’s crypto-enabled cards will involve better customer experience, “making it easier to spend cryptocurrency in everyday situations.”
  • Mining Startup Begins Massive Bitcoin Operation In Texas: In a press statement shared with industry outlet The Block, Layer1 revealed that it has officially launched its Bitcoin mining operation in Texas, purportedly bringing online several containers that have a 2.5-megawatt capacity each. The exact extent of the farm wasn’t disclosed, though the statement mentioned that Layer1 is likely to control 2% of the entire Bitcoin network’s hash rate in the coming months. By the end of 2021, Layer1 wants to control 30% of all of Bitcoin’s hash rate through the Texas site and others they have control over.
  • IRS Ramps Up Crypto Efforts:  According to an IRS communique received by Bloomberg Tax, the IRS is calling upon crypto companies and executives to convene at a March 3rd summit that will discuss how the tax agency can “balance taxpayer service with regulatory enforcement.” The summit will purportedly involve at least four panels, during which information will be shared about crypto exchanges, compliance, and tax returns. This comes shortly after Steven Mnuchin, the Secretary of the U.S. Treasury, said in a hearing held by the Senate Finance Committee last week that the FinCEN branch of the Treasury will soon roll out “significant new requirements” for entities working with Bitcoin and other digital assets.
  • Serenity Is Actively Being Developed, Ethereum Creator Confirms: Vitalik Buterin, the original creator of the blockchain, recently confirmed that the development of Ethereum 2.0 (or Serenity) is going on well. Buterin, during his speech at a recent event mentioned his thoughts on Ethereum 2.0, expressing optimism about the timeline for this blockchain upgrade, which will likely be the biggest upgrade or change made to any blockchain system, ever:
    [I] DEFINITELY THINK ETH2.0 HAS BEEN PROCEEDING QUITE QUICKLY AND REGULARLY IN THE LAST FEW MONTHS.A member of the team researching and developing ETH 2.0, Justin Drake, wrote in a recent Reddit “Ask me Anything” regarding Ethereum that he has “95% confidence we launch in 2020.”
  • SIM Swap Hack Sees Whale Lose $45 Million: According to a post published to the “BTC” subreddit by a user going by “Zhoujianfu,” they have just been hacked for a large sum of both Bitcoin and Bitcoin Cash (BCH). The addresses attached to the post, confirmed to be owned by the Reddit user through the signing of a message with a Bitcoin private key, suggest that $30 million worth of BCH (around 100,000 coins) and $15 million worth of Bitcoin (1,550 coins) were stolen.

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$39 Mln Worth of Bitcoin (BTC) Sold to One of Winning Bidders by US Marshals

The United States Marshals Service sold 3,991 Bitcoins (around $38.8 mln) to one of the two winning bidders. The other one got the remaining 50 BTC that were up for auction. 

Another batch of sold coins  

The federal law enforcement agency made an announcement about auctioning off about 40,000 confiscated coins on Feb. 1. All bidders were required to deposit $200,000 over a nine-day registration period. 

The auction took place on Feb. 18 with a total of 38 received bids. It took the US Marshals more than two days to announce the final results due to a complicated review process.  

Not the best Bitcoin holder 

The US government has auctioned off 185,230 BTC over the span of six years, gaining $151.4 mln from its sales. Casa CTO Jameson Lopp recently estimated that the US Marshals had lost around $1.7 bln by selling its holdings way too early. 

Venture capitalist Tim Draper, who was the winner of the very first auction, was ridiculed for buying 29,657 BTC in 2014, but he eventually got the last laugh.  

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Irish drug dealer loses $60 million in bitcoin

An Irish drug dealer learned the hard way what every bitcoin investor knows: never lose your codes.

Clifton Collins, a former security guard and a beekeeper turned weed grower/dealer, lost $60 million when his landlord cleaned out the house he’d been renting and sent everything to the dump — including Collin’s fishing rod case that hid his Bitcoin codes. Without the codes, the accounts can’t be accessed.

According to the Irish Times, “Collins bought most of the Bitcoin in late 2011 and early 2012 using cash he made growing crops of cannabis. In early 2017 he had just over 6,000 Bitcoin in one account but he feared it may be too easy for a hacker to access. He decided to spread his wealth across 12 new accounts … then printed out the codes for the 12 accounts onto a piece of paper. He hid the paper inside the aluminum cap of his case containing his rod which he kept at his rented home in Farnaught, Cornamona, Co Galway.

It all went south for Collins when he was arrested in 2017 for cannabis possession and sentenced to five years in prison. His house was broken into and, shortly thereafter, his landlord sent his belongings — including the fly fishing case — to the dump.

Dump employees remember seeing fishing gear — but the garbage was soon cleared and sent to either Germany and China to be incinerated.

The Criminal Assets Bureau confiscated the 12 accounts, but can not access them either, without the codes, the Irish Times Reported.

Collins has since come to terms with the loss and “considers it punishment for his own stupidity.”

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