Proof-of-Work (PoW) seems clunky and archaic next to the new, energy-efficient Proof-of-Stake (PoS). The reports of its death are greatly exaggerated. Bitcoin, Litecoin, Dogecoin – sorry, these guys aren’t going away anytime soon. Where there’s PoW, there are mining pools. These joint endeavors, in which miners pool their computational resources to crack those tough cryptographic nuts, are going to be around, likely as long as the chains do. They’re crucial to the underdog being able to have a fighting chance at all.
Decentralization Faces A Looming Threat
The future isn't guaranteed. A far greater threat than PoS looms on the horizon: regulation. Well-intentioned, sure, but in its impact utterly catastrophic. We're talking about the kind of blanket regulations that treat every crypto miner like a potential money launderer or environmental terrorist.
Think about it. In response to this, mining pools were created to democratize the mining process. Rather than requiring a warehouse of ASICs, people can point their hash power and get paid based on their contribution. Okay, maybe not Foundry USA Pool, EMCD, Antpool, Braiins Pool, and yes even Binance Pool still rule the roost at this moment in time. This does not imply that smaller pools aren’t critical to diversity and resilience.
What happens when regulators require Know Your Customer (KYC) compliance from each user in a mining pool? What does this mean for Anti-Money Laundering (AML) regulations? So what happens when arbitrary energy consumption limits are imposed, without any acknowledgement (or care) that the source of this energy might actually be renewable? What if a member does a cross-border transaction with another member, and those transactions are not allowed?
The answer is simple: smaller pools get crushed. The cost of compliance becomes prohibitive. The barriers to entry skyrocket. Small-scale miners in developing nations—often the ones who would most benefit from the additional income—are priced out. It puts the whole ecosystem under the control of a few large, easily-manipulated entities.
This isn't just speculation. We've seen it happen in other industries. Well-intended overzealous regulation, meant to protect the consumer from new and risky entrants, ends up protecting the entrenched incumbents and suffocating innovation.
Environmental Concerns Versus Innovation
Let's be clear: environmental concerns around crypto mining are valid and need to be addressed. The story that all crypto mining is bad by definition is a harmful oversimplification. As a result, many miners are interested in actively pursuing renewable energy sources. At the same time, innovation with new technologies constantly improves energy efficiency.
That’s not to say that slapping arbitrary energy consumption caps on mining pools is the way forward. That doesn’t mean that banning all cars to address traffic congestion isn’t the solution. Instead, we need to put our dollars into better public transportation options and smarter traffic signaling systems. We should adopt a more nuanced approach that incentivizes sustainable business models, but doesn’t cut off innovation at the knees.
Rather than rely on one-size-fits-all top-down mandates, how about trying out regulatory sandboxes? Instead, why not promote industry self-regulation, having pools implement these best practices and ensuring they hold themselves accountable? Why not focus on educating consumers about the environmental impact of different cryptocurrencies and mining methods, empowering them to make informed choices?
Is Centralization The Inevitable Future?
That is the beauty of cryptocurrencies such as Bitcoin, Litecoin, Dogecoin, Kaspa and Monero. The further away the network, the more censorship and attack resistant it becomes. That’s why mining pools serve as an important ecosystem to help keep this decentralization.
Do we truly want a handful of multinationals calling all the shots in the mining ecosystem? Increasingly, these companies are willing and able to adopt the strictest regulations. Is that really the route to a more secure and democratic financial system?
We should be careful to avoid the overregulation’s unintended consequences. I believe we need to create an environment to support both innovation and decentralization – not inhibit it. Otherwise, we run the danger of slaying the golden goose. And that would be a tragedy—not just for DeFi, but for the entire cryptocurrency ecosystem.
The case is not against all regulation but in favor of smart regulation. Regulation that understands the nuances of the crypto space, that encourages sustainability without crushing innovation, and that protects consumers without sacrificing decentralization.
Think of the internet itself. It excelled because, during its formative years, it was relatively unregulated. Just think about what would have happened if governments had managed to rein it in from the very beginning. Would we still have the dynamic, creative ecosystem we enjoy now? Unlikely.
Cryptocurrency, and mining pools, should get this same opportunity. Let’s not murder them with sympathy – or more precisely with suffocating compatriotism. The future of decentralized finance rests on it.
It’s time to begin this discussion, and we need to do it soon before that is no longer an option.
We need to start this conversation now, before it's too late.
