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A new Arbitrum protocol makes it possible to directly mine new Bitcoin (BTC) without having to run your own expensive ASIC machines.
Lumerin—a decentralized data stream routing project—has turned Bitcoin hash power into a tradable, liquid asset that can be bought and sold in a peer-to-peer marketplace using smart contracts.
“Bitcoin miners will have a frictionless path toward buying and selling mining capacity, and non-miners will be able to participate in the same marketplace,” wrote Lumerin in a press release shared with Decrypt on Tuesday.
Per the announcement, the Lumerin Hashpower Marketplace allows miners who sell their capacity to specify hash rate amount, duration of services, and price. This helps create a predictable revenue stream in an environment where Bitcoin’s sometimes volatile price largely dictates miners’ income.
On the other hand, existing miners can purchase more capacity to increase revenue without needing to purchase fast-depreciating equipment.
Centralized cloud mining and colocation services have been offered by industrial mining firms for years, with companies letting individuals rent their ASICs through tokenized securities. Blockstream, for example, lets individuals get exposure to its mining rigs through its Blockstream Mining Note (BMN), a security token on the Liquid network.
By contrast, Lumerin decentralizes the process by streaming actual hashrate directly to buyers’ own devices.
“Lumerin is the digital piping that connects the flow of hash rate from ASIC to smart contract to buyer’s device,” Lumerin founder Ryan Condron explained to Decrypt. “The nodes feed the information to the smart contract, which acts as an escrow that keeps the buyers' funds secure, releasing them to the seller in real-time as the hashrate is delivered.”
Condron said Lumerin’s method allows buyers to get their exact money back if a hash rate seller fails to fulfill their full contract. It also helps decentralize ownership of Bitcoin’s hash rate by helping distribute it to retail investors, improving the health of the network.
“The top 3 mining pools control approximately 50% of the total Bitcoin hashrate,” he noted. “Instead of directing their hashpower to one dominant mining pool, miners now have the flexibility to distribute their hashpower through various smart contract offers.”
Bitcoin developers like Luke Dashjr have warned that the centralization of mining pools could make the controversial “Drivechains” Bitcoin proposal more risky, by increasing the chance of miners stealing users’ coins after the upgrade.