Why a Cryptocurrency Mining Giant Is Burning Money in a ‘Black Hole’
Bitmain’s AntPool has committed to “burning” 12 percent of Bitcoin Cash fees, illustrating cryptocurrency’s troubling economics.
Learning about cryptocurrency economics can be a bit like biting into an oatmeal cookie and finding raisins when you thought they were chocolate chips: Entirely unexpected, and frankly unsettling.
Consider the case of AntPool—one of the largest cryptocurrency mining pools in the world. According to announcements on social media on Friday, the pool is “burning” 12 percent of the money it makes mining the Bitcoin Cash blockchain and is encouraging other miners to also burn a portion of their earnings. This appears counterintuitive, since for profit-seeking businesses there is normally an imperative not to light the money you make on fire. Very interesting! But why?
Coin burning, if you’re not familiar, is a well-trod path to inflating the value of a cryptocurrency with a fixed supply, like Bitcoin Cash. The value of coins with a fixed supply is based on increasing demand and steadily decreasing supply. If you can accelerate the diminishment of available coin stock, then theoretically that should increase demand for the remaining supply and, in turn, the coin’s value. Burning involves sending coins to an irrecoverable address, which Antpool calls a “black hole.” The end goal is to further enrich people already hoarding Bitcoin Cash tokens.
“While having active users spending BCH is very important for the ecosystem, having investors who hold BCH is also a fundamental requirement for maintaining a strong economy,” the announcement stated. “Without these holders, BCH’s exchange value loses significant support. We believe that they too should profit from the growth of BCH by their continued stake in the Bitcoin Cash ecosystem.”
Bitmain, the multi-billion dollar Chinese firm behind AntPool, didn’t immediately respond to Motherboard’s request for comment.
AntPool combines people’s computing power to guess the correct number that verifies a block of cryptocurrency transaction data, for which AntPool receives an automatic reward that is split between pool contributors, and the company holds on to the voluntary transaction fees. AntPool accounts for 14 percent of the Bitcoin network’s mining power, and 12 percent of Bitcoin Cash, a recent fork of Bitcoin that is now in competition with its predecessor. Bitcoin Cash has lost half of its value since the beginning of the year (to be fair, so has Bitcoin), which is bad for business. What’s a miner to do? If you’re AntPool, you burn coins.
But since Antpool isn’t the biggest Bitcoin Cash mining concern out there, it needs some help to push the value of Bitcoin Cash up. “We call for other miners to join us in burning 12 percent of the transaction fees collected,” AntPool’s announcement stated.
You can position this practice as “sharing revenue” with the network, as AntPool has, or you could just as easily see the move as artificially inflating the value of an asset that AntPool itself hoards. As one Twitter user put it in response, “Sounds desperate,” and another: “Rekttttttt.”
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