Ownership or: How I Learned to Stop Worrying and Embrace Decentralization.

I am the owner of a large, private mining operation. Enclosed are some thoughts on the state of decentralization, with a brief backstory to humanize the scene.

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I have always possessed an innate fascination with the notion of ownership. It often exists as a binary expression of whether one can categorically exercise control over a system or object, including even people in the history of many societies. Tracing the history of political economic thought regarding ownership, one would most certainly have to start with the discussion of Property in John Locke’s Second Treatise — “Men being, as has been said, by nature, all free, equal and independent, no one can be put out of this estate, and subjected to the political power of another, without his own consent.”(1)

From there, Andrew Reeve’s The Theory of Property, followed after — “The political theory of property focuses on the relation between the explanatory and justificatory discussion of property, and the political issue of who gets what, when and how.”(2) Rothbard’s The Ethics of Liberty discusses intellectual property, and eventually Robert Nozick’s Anarchy, State and Utopia builds on a Lockean narrative for further clarity — “Individuals have rights, and there are things no person or group may do to them (without violating their rights).”(3) The modern existentialists would say property is “the ability to exclude, directly or indirectly.” Would anyone disagree that the ability to exclude someone from your private home that was purchased with the fruits of your labor is a fair and just right that should be maintained by all?

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That, however, is a relatively clear-cut example. Let me present a more nuanced hypothetical — say one were to purchase the deed to a plot of land upon which some third party (neither the land buyer nor the land seller) had buried a treasure of immense value some years earlier. After weeks of painstakingly combing every inch of the property with a metal detector and digging up countless bottle caps and pieces of scrap metal, the landowner finally (and quite possibly literally) strikes gold. Just then, the burier of the treasure drives up, presents the landowner with video footage of themselves burying the treasure, and claims that it belongs to them. The landowner disagrees and presents the burier with their warranty deed, which states in no uncertain terms that the landowner maintains exclusive rights over the property including all minerals, metals, and other natural resources to be found below the surface. The burier protests, claiming that the seller of the property had no authority to transfer ownership of the treasure, as it never belonged to them.

To whom go the riches? Does ownership of the property entitle one to something buried on that property by someone other than the seller of the deed? Can we award the treasure to the landowner based on their efforts to obtain it? Or is the burier correct, the treasure never belonged to the seller of the land and thus ownership did not transfer along with the rest of the property as it was never theirs to sell? We will return to this hypothetical question later and examine it in context.

The overall details of the intellectual and philosophical journey that the notion of property rights have taken over millennia are inconsequential. The continued growth of this notion exists as an intangible abstraction that’s constantly with us, yet impressively difficult to hone in on as a focal point.

The end result has given birth to a reasonably cemented conclusion, with multiple assumptions ingrained. They are as follows:

1. For many, the concept of property is a form for self-definition. I have this; therefore I am this. It’s a logical, albeit shortsighted, fluffing of the ego — we are simultaneously more and less than what we possess (That is a discussion for another time).
2. For others, property is about the exertion of force, leading to the perception of control over a scarce or attractive resource.
3. For some, property is the primitive presentation of social status.

With the aforementioned acknowledged, I have my own definition of property, which can best be summarized in the following sentence:

The ownership of Property is the asymptotic degree of difficulty that one actor needs to separate possession from another actor.

When questioning fiat currency, a deeper understanding of the history and opaque machinations undergirding our existing monetary system leads one to the realization that a deposit held by a commercial bank merely acts as a sophisticated form of an IOU. Currency is issued by a Central Bank, and controlled by the state through the manipulation of interest rates and taxation. Sending someone $1,000,000 can be achieved through a few manipulations of centralized code. It is efficient, yet fundamentally unsound and reliant upon trust in external actors for enforcement of agreed upon value. Returning to our buried treasure hypothetical: are you, the burier of the treasure, still in possession of your money held on the bank’s property? As a matter of fact, you the depositor are not technically in possession of your money once it has been deposited in a bank, all you have is a claim on that bank for the amount of your deposit, as the money itself has become property of the bank for that institution to lend out to others as they see fit. In other words, bank deposits are debt obligations owed to you, akin to the purchase of a bond.

This thought continued to grow within the garden of my mind for a number of my formative years. It existed purely as something abstract and intangible until I started to expand my ability to express myself more succinctly. The implied heuristics of such thought exploded in my mind’s eye when I discovered the concept of Bitcoin in 2011. At the time, I was an avid online gamer during the inception of the Pay2Play model of subscription services. Video games such as World of Warcraft had robust virtual economies based upon the intrinsic value of in-game commodities. Gold, in World of Warcraft, could be earned through grinding through repetitive tasks. Five hours of real-life, spent clicking away doing menial in-game work, was worth “gold”. Gold was spent on upgrading your power, and thus a robust billion-dollar economy was born where in-game gold had real-world value.

I started selling this “digital gold” illegally towards the end of my tenure playing the game around 2010, cementing in my mind the concept that bits of data could have fundamental value based on demand, and backed by nothing other than utility. I would later realize that this in-game currency was not, in terms of the aforementioned nature, all that different from traditional currency. Both are nothing more than entries in a database, with their value determined solely by their ability to allow the holder to exchange them for something that had actual, intrinsic value. The main difference between the two appeared to be that the demand supporting the value of World of Warcraft gold emerged organically, while the demand for fiat currency has always been supported by the state’s declaration of said currency as legal tender, and the use of taxation to create perpetual, albeit artificial, demand for its own currency.

It was perhaps a mixture of fortuitous timing and my trite adolescent ethos that turned my basic seedlings of libertarian economic policy and observation of digital assets in video games, into an understanding of the opportunity presented by the cryptocurrency revolution. My initial fascination with Bitcoin grew into a deeper understanding of the protocol, both on a technical and economic level. This understanding would eventually lead me to my current position as the owner of a mining facility, one that operates at a scale larger than 99% of hobbyist miners today.

Cryptocurrency Mining — a Technical Overview:

On October 31st, 2008, a pseudonymous programmer going by the name Satoshi Nakamoto published a short whitepaper entitled: Bitcoin: A Peer-to-Peer Electronic Cash System. The paper describes an electronic currency that could be held, traded, and issued without the oversight of a trusted third party such as a bank, corporation, or government. Instead, the system relies upon a peer-to-peer network, a set of cryptographic functions, and a very clever incentive structure to allow any two willing parties to transact electronically without the need for an intermediary. Bitcoin relies on a peer-to-peer network to distribute information about the current state of the system’s ledger, known as the “blockchain”. There are three kinds of participants in this peer-to-peer network: Full nodes, Simplified Payment Verification (SPV) nodes, and mining nodes. Mining nodes are the most active participants in the network — they are responsible for packaging recent transactions together into a data structure referred to as a “block”. Blocks have two components that can be downloaded separately: The block header, which contains the block’s metadata, and the transactions in the block. Approximately every ten minutes, all of the mining nodes on the Bitcoin network pluck an assortment of unconfirmed transactions out of their memory pools and package them together into a candidate block along with some metadata. Then, the miners repeatedly perform the SHA-256 hashing algorithm on the data in their candidate block. Since SHA-256 is deterministic, some data within the block must be altered every time the hash is computed, otherwise the miners would get the same output every time. Each time the miners hash their candidate blocks, they change the nonce (short for nonsense number, as it serves no other purpose than to change the SHA-256 output) value in the block header. The nonce is generated randomly each time the miner hashes their candidate block. The miners are attempting to come up with an output that has a certain number of leading zeros. The exact number of leading zeros required by the protocol varies depending on the mining “difficulty” which is algorithmically adjusted every two weeks. This maintains a consistent average block time of ten minutes regardless of how much computing power is devoted to mining bitcoin at any given time. Once a miner comes up with an output that has the target number of zeros, that miner’s block is accepted by the network as the next canonical block in the chain. All other mining nodes then discard their candidate blocks, download the winning block, and the cycle continues. The miner who created the winning block receives the block reward, which, as of writing, is 6.25 brand-new bitcoins, along with all of the transaction fees paid by the senders of the transactions that were included in that miner’s block. The amount of newly-minted bitcoin paid to the winning miner halves every four years. It was originally 50 bitcoins, then it was halved to 25, and in 2016 it was halved again to 12.5, and now in 2020 it has halved again to 6.25 bitcoins, and so on, until (somewhere around the year 2137) the block reward will be one satoshi, or 0.00000001 BTC, the smallest possible amount of bitcoin. Four years after that, no new bitcoin will ever be created, as the system will have hit its monetary supply cap of twenty-one million bitcoins. From then on, miners’ income will consist of transaction fees alone. It is worth noting that the two largest spikes in the price of bitcoin have each occurred one year after the block reward gets cut in half, leading some Bitcoin proponents to suggest that the diminishing supply is fundamentally responsible for the increased value of the asset.

When people ask why miners are forced to participate in this time consuming and energy- intensive task, they are often surprised by the answer: Simply because it is time consuming and energy-intensive. If mining were trivial, an attacker could launch an attack against the network simply by gathering enough computers to outnumber the honest miners. However, because mining demands such a large number of computational resources and energy, our hypothetical attacker would have to gather enough computational resources to overpower all of the honest miners, rather than just having to outnumber the honest miners. This scheme was first used in the Hashcash proof-of-work system for limiting email spam. Hashcash required the sender of an email to do a small amount of computational work (solving the same puzzle that Bitcoin miners are trying to solve) per recipient. If one were sending an email for business or to a friend, the amount of resources consumed by the Hashcash proof-of-work would be negligible. However, if one were trying to send spam emails to thousands of email addresses, the time and resources required to solve the proof-of-work would make sending said emails economically unviable. This same incentive scheme applies to Bitcoin. Even if an attacker were to amass enough computing power to outwork the honest miners on the network, it would be in their economic interest to use that power to honestly mine, and claim the block rewards than to attack the network. In this sense, Bitcoin and other cryptocurrencies are game-theoretically secured as well as cryptographically secured.

Full nodes are participants in the Bitcoin peer-to-peer network that download an entire copy of the blockchain and continuously update it with new blocks as miners produce them. Full nodes also keep unconfirmed transactions in their memory pools and relay said transactions to other nodes on the network. Full nodes also relay newly mined blocks received from other nodes on the network. Technically, mining nodes are a subset of full nodes that have opted to mine as well as store, and relay transactions and blocks. The last form of node, SPV nodes, are useful for those who do not wish or do not have the memory on their computers to download the entire blockchain, which, as of writing, is over 200 GB. SPV nodes simply download the block headers, rather than downloading the entire blockchain, which requires far less memory. When necessary, usually when instructed by the user to send a certain amount of bitcoin, SPV nodes will query their full node peers on the network to construct a transaction that spends an output from a previous transaction in which the sender of the new transaction was the beneficiary.

Participants in the Bitcoin network are identified only by their Bitcoin addresses, also used for sending or receiving funds. The ability to spend funds registered to a given Bitcoin address is contingent upon knowledge of that address’ private key (after all, a Bitcoin address is nothing more than a form of public key). When sending a transaction, Bitcoin wallets will construct an elliptic curve digital signature (ECDS) by hashing the transaction data and encrypting that hashed output using the sender’s private key. All the nodes on the network can then verify that the signature is accurate by hashing the transaction data themselves, decrypting the signature using the sender’s public key (also known as their Bitcoin address) and verifying that the resulting hash is equal to their hash of the transaction data.

Cryptocurrency Mining — The Political Economic Perspective:

Bitcoin is more than just a technology — it is a tool of political resistance, a cultural phenomenon, and a high-tech experiment in monetary economics and game theory. The economic philosophy underpinning Bitcoin is staunchly Austrian, monetarist, and metallist in its leanings. It is a commodity that derives its power not from the state’s Monopoly (Chartalism), but rather as a bonafide saleable medium of exchange. In essence, Bitcoin is a universal record-keeping system that cannot be altered or controlled by any one single entity. This is what is meant when the system is described as an “immutable ledger”. Unlike the ledgers maintained by commercial banks, central banks, and the Bank of International Settlements which have exclusive control over all global fiat currencies, the ledger that underpins Bitcoin has no such central authority at its helm.This means that no one entity on the planet has the power to issue to new currency units at will or reverse a settled transaction.

Instead, the task of maintaining this ledger and processing transactions falls upon a global network of volunteers who elect to connect to the network, and offer up the power of their hardware. These volunteers might be motivated to do so by the prospect of earning new bitcoin, or out of an ideological commitment to the health of the network, or both. In truth, it does not really matter what their motivations may be. The point is that any actor who participates in this process is doing so entirely of their own volition. No state is coercing them into engaging in such activity via taxation. Cryptocurrency mining is volunteerism in its purest possible form.

This is essentially the pipe-dream of PayPal( who ironically is considering Bitcoin integration) but at an even more grandiose scale. Instead of hiding behind the obfuscation of centralized servers, all value is made manifest for the world to see, with universal consensus dictating who owns-what, or has spent and received what amount of value. Instead of centralized actors arbitrarily agreeing to my balance, the entire ecosystem is synchronized through both geographic and fundamental collaboration. What’s more, unlike PayPal, the system has its own currency that is separate from the existing system, rather than acting as a layer on top of (and fundamentally reliant upon) the existing commercial banking and monetary system. This has become increasingly important, as has been revealed by the efforts of global governments and central banks to fight the economic devastation resulting from the coronavirus pandemic. Traditional currencies have been, are being, and will continue to be increasingly debased through unprecedented fiscal stimulus and monetary creation, with the financial accountability of these centralized actors eroding at a breakneck pace.

Trust is flowing away from the existing financial system at a rate never before seen in history. Returning once again to our buried treasure hypothetical, the owner of a certain quantity of bitcoin currency units is determined solely by possession of the private key necessary to spend bitcoin held by a given address. One could easily imagine the treasure in question, to be the private key corresponding to an address holding a large amount of bitcoin. The same dispute about who is the owner of that private key could still arise, however in the eyes of the network itself, whomever is in possession of that key is, for all intents and purposes, the owner of the bitcoin held by the corresponding address. The ease of replacing in one’s imagination a treasure composed of cash, precious metals, or bearer bonds with a treasure composed of cryptocurrency perfectly displays the cash-like nature of the asset. The possessor is the owner. Such a dispute could never arise over the ownership of a deposit held at a bank, as that deposit is legally attached to the identity of the depositor.

Enter a New World:

Bitcoin contains unbounded a-priori characteristics (described previously) that are correlated with the positive growth in the value of the asset. Creating technology with inherent trust baked into the core mechanisms is the essence of the trust revolution. The avant-garde governance models will become revolutionary. I would like to lay out a few key points that will form the basis of my argument going forward in this piece:

1. The proof-of-work consensus protocol solves the double spending problem through its limited barrier to entry and innate decentralization. As mentioned previously, the ability to negate the need for root auditing and eclipsing that with referenceable and immutable hashpointers is profound. The only limitations on this are the computer power available from ASIC miners, which I believe will continue to grow in both hashrate and efficiency( Th/s:Watt). The lack of ability for gamification through coercion — because it is a universal system devoid of credit at layer 1, the system functions as a universal pseudo-debit system. Individuals have the freedom to choose to engage with the protocol, and those contentious with the workings may migrate to a new protocol of their choosing.
2. CommUNITY: As mentioned previously, Bitcoin is far more than just money. The ecosystem is designed to create trustless barriers of exchange and represents a revolution in trust through decentralization. The governance structure has anarchistic tendencies, as any notable change to the underlying protocol requires the consensus of the sum total of the community; those procuring bitcoin based on speculation (Hodlers), those facilitated the ledger and validating transactions (Miners), and those contributing to the source code and maintaining the ledger (Developers, evangelists, node-operators). Consensus is pivotal, and pseudo-anonymity allows recognition of contribution without necessitating that one’s “real-world” identity entering into the mix.

These two core aspects undergird the concepts of decentralization, scalability, and immutability.

Why is Decentralization Needed?

The need for novel ways to remedy the double-spending problem helped lay the foundation for the rise of distributed peer-to-peer ledgers (blockchains), and yet the world around Bitcoin has grown even more reliant on trusted intermediaries in the digital age. We depend on financial institutions and other centralized corporations such as PayPal to maintain and transfer value, we depend on social media giants such as Facebook and Twitter to safeguard our data and online identities, and we depend on centralized state agencies to create and enforce laws.

Companies like Google and Facebook were originally created to sew the divides and create a higher level of globalization through socialization of the internet. The world jumped on to this original vision like wildfire, and countless people around the world indulged in sharing their data, thoughts, hopes, frustrations and fears, life’s work and goals. Before we even knew it, we were hooked. Companies had our data, financial institutions controlled our banking data and information, and apps were sharing our personal data in ways that were previously inconceivable. The most startling thing is that most people are so ignorant to the effects of this, on both their financial lives and personal property, and on their ability to exercise control of their online personas, that they accept this as a necessary evil. They do not seek any remedy for the steadfast direction of capitulation they continuously sail into. These platforms had originally labeled themselves as agnostic to social issues, and yet they’ve morphed into proprietors and arbiters of partisan information, such as with the ads Facebook permits, or articles it boosts after harvesting and selling our collective data for billions of dollars. Twitter’s decision to censor the posts of various world leaders, and not censor lies spewed by others on their platform exemplifies this. These corporate monoliths now have the centralized infrastructure to continuously sell our content without consent and financially benefit from it. They then benefit thricely by distributing it and selling it to others without consent. The information we see is often curated and warped, institutionalizing viewpoints and even our own self-identified personal narratives. Decentralized blockchain networks present us with a much-needed alternative means of achieving these ends.

Bitcoin was conceived at an incredibly opportune time. The need for accountability and credible reference within our own personal and financial spheres has never been more necessary. The transparency of proof of work mechanisms and trustless protocols is what compelled me to start my company, with my brilliant business partner Andrew Insignares, and the backing of a visionary group of financial professionals called Y2x (Y2x.io). The intent of our “Tier 0 Data Center”, is to allow a greater degree of participation in the cryptocurrency network than what otherwise would have been obtainable, in addition to providing secure hosting for cloud gaming, machine learning, and AI research. We accomplish this by taking advantage of the discrepancy between industrial and residential electricity, off-taking electricity and effectively cutting out the transmission and replacing it by returning to the mainframe model of computing. Blazing bandwidth speeds allow us to relay data in real-time, so the machinery for servers or other high energy requiring apparatus can be collocated to our facility.

The endeavor touches on a contentious and fascinating aspect of decentralization on the network. Does creating a secure warehouse with cheaper electricity through our leveraged power purchase agreements, contribute to decentralization, or is it a gradual concerting of centralized forces? For the Bitcoin network, this means individuals or groups who wish to mine in their home but cannot, due to inhospitable electric rates, detrimental environments where noise and exhaust are problematic, or the desire for protection beyond what one is capable of providing for themselves *, are capable of doing so in a cost-effective manner, both in terms of computer hardware and electricity. However, the concept of cartels of power emerging, such as mine, has proven to be a hostile issue in the community. The question, then, is am I increasing centralization, or providing ability for decentralization to expand? How does geography factor into this?

The central argument of this piece is as follows:

The increasing trend of mining hash power moving away from small, often individual, hobbyist miners and towards larger, professional operations that can leverage cheaper electricity prices and greater computational resources is not only a natural, predicable, and quite likely intentional result of the Bitcoin network’s design, but it also does not compromise the inherent decentralization of the system.

When Bitcoin was in its infancy, the network survived completely off of the volunteer efforts of the aforementioned hobbyist miners, most of whom supported the network out of a desire to see it succeed for ideological reasons, as the significant financial incentives in place today were only theoretical at that point in time. However, as interest in the network and the value of the currency grew, the amount of computer power dedicated to maintaining the network grew in tandem. To compensate for this influx of resources, the mining difficulty adjusted upwards as well, to maintain an average block time of roughly ten minutes. This eventually made CPU mining virtually impossible, and resulted in the employment of more powerful GPU (graphics processing unit, used primarily for PC gaming) mining set ups.

This trend would only continue, eventually rendering GPU mining virtually impossible as well, and resulting in the development and utilization of specialized ASIC mining equipment. ASIC (application-specific integrated circuit) is a term for a kind of computer hardware designed to perform one task extremely efficiently — in this case, mining Bitcoin. These ASIC miners were and continue to be very expensive, both in terms of the hardware itself, the electricity consumed by said hardware, and the cooling systems required to operate such hardware at the level demanded by Bitcoin mining. Naturally, this confluence of factors priced a segment of the interested population out of “solo” mining, and resulted in the establishment of what are colloquially known as mining “farms”: professional mining operations with warehouses full of ASIC miners and industrial-grade coolant systems set up in strategic locations to take advantage of low electricity prices.

Just as a corporation founded in a garage or a dorm room eventually grows to the point where it requires professional office space, store fronts, shipping facilities, etc., the Bitcoin network outgrew its hobbyist, CPU-miner roots and has evolved to such a point where professional mining operations are a necessity for its survival and continued success. This industrialization of mining is not anathema to decentralization, it is the next phase of the system’s decentralization.

Bitcoin, being inherently anarcho-capitalist by design, has and will always rely on the forces of competition to survive and thrive. In its infancy, those forces took the form of hobbyist miners competing against one another to publish the next block. Today and in the future, those forces take the form of professional mining operations employing ever-greater resources to compete against one another to claim the same prize. Those that are able to do so while maintaining profitability will succeed, those that are not will fail. Regardless, Bitcoin will prevail, maintaining its inherent decentralization to the same extent today and tomorrow as it did yesterday, five years ago, or ten years ago. Decentralization is here to stay.

Jesse Fastenberg (2020)

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Locke, John. Second Treatise, Sect. 95

Reeve, Andrew. The Theory of Property: Beyond Private vs. Common Property, pg. 91 in David Held’s Political Theory Today

Nozick, Robert. Anarchy, State and Utopia, pg. ix

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