Bitcoin Mining Decentralization with the DATUM Protocol w/ Bitcoin Mechanic & Jason Hughes (BTC203)

(00:00) hey everyone this episode is brought to you by river the place that I personally go to securely invest in Bitcoin with confidence and with zero fees there's about around four or five entities in the world that are deciding what goes in the blockchain that's centralized and whether or not the ramifications of that have reared their ugly head yet is kind of irrelevant we don't really want to wait for that to become the problem that it could be before we fix it because if it starts becoming a problem and we tried to fix (00:31) it

we're going to meet a lot more resistance than if we take a prophylactic attitude where I want to start off is mechanic you and I had a really good discussion about block templates why it's important for miners to be able to have block templates basically re get control of the block template because right now it's very centralized at the mining pools can you give us just a 3 to 5 minute overview for people that might not have heard that conversation we're going to have a link in the show notes (01:04) to that entire conversation if

people want to really kind of go deep on the idea but give us like a three or five minute version to catch them up on why this conversation we're having is important right so my overall summary on it is Bitcoin needs to be decentralized and it's one of the characteristics Bitcoin has that makes us not only work as we should work but also it's the thing that separates us from the plethora of coins out there right but interestingly I'm going to try and knock off on too many tangents here but (01:35) Bitcoin was fairly centralized

at the beginning and it became more decentralized as time went on and it's been trending generally in the right direction but there are many aspects to bitcoin some aspects became much more centralized and some became much more decentralized and we need to tackle those when they happen because people like centralization because it's really efficient and it's really cheap there's always an inherent cost to decentralization because you have to do a lot more work yourself there's some (02:01) you know time you have to spend learning how to tie your own shoelaces so to speak that's Just

how it is so one part of the ecosystem in Bitcoin that became really centralized is block template construction now if you go I have no idea what that is it's simply whoever creates a block template is someone that's deciding what goes in the blockchain now that's a very very very important role it's part of mining but all of the Bitcoin miners around the world pretty much all of them have nothing to do with block template (02:31) construction for years now so that's something that's needed to be fixed if you look at the pie chart that

you'll see on mle Space you'll see that around 30% of the blocks are created by Foundry then another 28% or so by antpool then a bunch of smaller pools but a lot of them are really just window dressing for ant pool that's been established in a bunch of research and what does all that mean it really just means one thing it means there's about around four or five entities in the world that are deciding (03:01) what goes in the blockchain that's centralized and whether or not the ramifications of that have reared their ugly head yet

is kind of irrelevant we don't really want to wait for That to become the problem that it could be before we fix it because if it starts becoming a problem and then we tried to fix it we're going to meet a lot more resistance than if we take a prophylactic attitude and say let's try and fix this thing before it becomes a problem before people start exploiting it and benefiting from Bitcoin (03:28) centralization let's nip it in the bud let's make it so that miners decide themselves what goes in the blockchain again because mining is

actually quite decentralized the hashing part of it so you need to expand the role of what miners do to also deciding what goes in the blockchain and diminish the role of what pools do pools should just be a way for miners to solve cash flow and get consistent income they shouldn't be the ones deciding what goes into the blockchain because you can only really have a few pools you can't have (03:56) thousands of pools cuz then there is no pool it's just everyone is solar mining again so that is the raise on deure for ocean

that is why we do what we do we need to decentralize what it is that ends up in the blockchain or The decisions to that effect real fast for The Listener imagine there being and I'm going to use really generic numbers here to make it really simple let's say there's a thousand transactions that are wanting to get into the next block but there's only enough space for 100 there has to (04:24) be someone or something that says out of those thousand transactions these are the hundred that are going to be included in the next block

block they're often the ones that are paying the highest fee to get into the next block but if you only have three to five people that are making this decision as to what the next 100 transactions are that becomes a concern and everybody knows there's all these mining rigs in the world and some are being operated by an individual person some are being operated by large companies and publicly (04:52) traded businesses but when you think about it if I'm running my own rig and I find the block you would think that I would have the

capacity or the prerogative or the rights to basically say no these are the hundred transactions that I'm going to include out of these thousand in this block That my rig just found that's not how it works today thanks to Ocean who uh has highlighted this importance of a block template which is the hundred that we're selecting that would go into the next block this is all starting to change and (05:23) so that first conversation that mechanic and I had gets into a lot of detail and a lot of background on this Jason I'm curious if

you have any additional comments on this that you think are noteworthy before we kind of really dig into to your protocol that you wrote yeah me mechanic pretty much summed up the issue pretty well and I'm sure you guys went into detail in your other uh episode that I admittedly have not seen if you go back to the beginning of where things started I mean mining was completely decentralized you had the (05:53) people mining were running nodes and making blocks directly off of their own nodes and there were no pools so that was was as

decentralized as it could get and then we kind of moved towards pools so our our Arc of centralization has kind of gone up and is hopefully at its peak now with ocean going to Bring it back down I'll add to that as well um everyone was CPU Mining and everyone has a CPU then as we moved into Asic territory which is making computers specific to Bitcoin mining we had some centralization around that as well (06:25) because you know semiconductor manufacturing is basically you know two companies or two locations in the world that really do it

right okay let's talk about uh stratum and let's start with stratum V1 what is this uh because people hear this this terminology and they've probably heard stratum V2 more than stratum V1 but talk to us about what V1 is then let's get into the conversation of V2 but start us off what is this and why does a person even need to know what it is I guess I'll take that so there has (06:59) to be a way for the Hardware that's actually doing the hashing to know what it should hash so in the beginning uh

we had built into the Bitcoin note itself was a mechanism called getwork and it would give the minor a block header to hash and all it could spin were the last 32 bits was the KN so that gives it about four billion hashes before it has to request more Work from the node that was not super scalable because as as6 were able to do that amount of work in in milliseconds and even fpgas and gpus that wasn't super scalable back when I (07:35) ran alleias when we were still doing get work before stratum V1 really

took off I mean that pool was handling tens of thousands if not a 100 thousand requests per second for work it was getting out of hand so what stratum V1 did was a way to expand on get work and let the minor itself the hardware and the software that runs on that Hardware figure out more work for it to do that was useful for the pool and so it instead of just being able to spin the nons part of the header it was also able to construct the (08:09) coinbase transaction the generation transaction and modify

the coinbase portion of it to add additional entropy and so that was what stratum V1 was designed to do was just to make it so that the minor didn't have to contact the pool as often so now we're sending work every 30 seconds or so to the minor and they're able to work on that until the pool says otherwise and that was a bit of a change Versus these many many requests per second that were needed from each minor it was just a way to make that process more efficient okay (08:43) but it was it's

still completely centralized on whoever is generating the work at the pool side got it so then V2 comes out and my understanding was that this was a fix to some type of encryption or to make that process more efficient but then it's kind of morphed in into this decentralized template Construction in addition to making the encryption more efficient talk us through what initially was intended with stratum V2 and kind of where it was at and why you guys have kind of gone off in your own direction as stratum V2 is (09:18) still kind of in

Works in a very decentralized way with respect to the programmers that are working on it so stratum V1 as I mentioned was designed as a centralized protocol there's a centralized entity that is generating the work that the minor will do it's just a way to get the miner to be able to work on it for longer without having to contact that same entity again for more work it's not the most efficient protocol It's in plain text it's unencrypted so when we're sending things that are relevant to bitcoin matter (09:48) let's say binary data for the

coinbase that's not super efficient to double up on those btes and send it in NY as heck so it's kind of silly so immediately after Strat V1 was released there were proposals to do other protocols that were more efficient on the bandwidth side and converting some of that into binary and that wasn't initially called stratum B2 but eventually morphed into stratum B2 just to get that efficiency gain of being able to add a layer of encryption because you can do security over a (10:19) binary connection you can do that over stratum V1 as well but

no one really implemented it and then stratum V2 was supposed to solve that efficiency issue and add a couple extensions and things like that eventually it morphed into having a way to do your own changes to the block template on the pool side and then eventually pretty recently being able to construct your own full template on the minor side and negotiate that with the pool the issue with that is that it's still a centralized Protocol those aspects of Straton V2 where the (10:52) minor is in control of the template are not required and as far

as I know today are not implemented by any pool mhm there's I think one pool that implements the centralized aspects of stratum V2 but that's kind of predicated on the minor having changes to support stratum V2 which stratum V1 for this centralized aspect of works just fine it's not we don't necessarily need to go to all these vendors and be like we need you to support Straton B2 so if you want to do template Creation with even with stratum (11:24) V2 you need something external that's doing that template creation anyway so your Meers going have

to communicate with that which then communicates with the pool and then you rewinding your template so since that was the case we already have stratum V1 at the time that we started working on datam um there wasn't a clear path to being able to do pure decentralized templates so just decided to just do our own thing and and just make it happen so datam is completely decentralized the pool provides no work to the minor whatsoever (11:57) the minor has to generate all their work has to have their own template and if they don't have that

they don't have any work to do so it's kind of the opposite of what you would see from a centralized protocol let me put this in the in the plain text for everybody so V2 started morphing it got a little bit more cumbersome it looked like it was going to take a pretty long time for decentralized template construction to really take place Jason is a is a man of action he has extreme technical chops to (12:28) just say you know what I'm just going to kind of cat up my own protocol and then did it

in what eight months is is what I'm hearing for the datam protocol is that correct probably less than that overall because we had a lot of other projects going on but yes I mean it's it was conceived of and is going to be in beta in about eight months yes mechanic take it away what else am I missing here with the plain text version of what uh Jason just said no it's as remarkable as you present it like sv2 Str V2 has been (13:00) the fix for mining centralization when did Bash come around was it

like 2011 it's been A while I think it's 12 or 13 years we've been waiting for Straton V2 to come along and do this ocean started we didn't start with datam at the beginning we were busy doing other stuff Jason's basically done it I'm running it I'm going to show you what it looks like in a minute and I'm mining my own templates now on a pool we've done it in a couple of months was really lightweight as well which is nice unfort (13:29) there's quite a big you know running a node is a bit

more hungry than we'd like these days you know we fought a war over keeping it easy to run nodes and keeping the requirements low that's really the heavy lifting any hardware you have has to do when it comes to implementing this in your own mining setup running datam on top of your node is if the node was nothing you could just run datam on like a Raspberry Pi 3 or something you know like we're talking like a $15 computer you could use for for running this thing (13:59) but I say it needs a node and

Nod are quite hungry now I want to pause real fast here's the thing listeners love a great story and I think we have a huge opportunity to tell A great story here that is a bit of a tangent but it also highlights you know Jason is such a gifted programmer such a gifted developer we got to tell this story you and I tell this story as long as he's not going to be too embarrassed we're going to no you're fine it's not the first T yeah so mechanic tell the story about (14:31) Jason and Tesla

just to give the listeners a little taste of like who we're who we're dealing with here on the show today so let's start by celebrating Jason a little bit anyone that watched the ocean launch will know this story anyway Jason ran the biggest well one of the biggest pools and arguably the first at least identifiable pool in Bitcoin that was aligia or ocean V1 as I often like to look at it and this was sitting on servers in Jason's house right and it had like hundreds of thousands of (15:04) Bitcoins have flown through that pool

you know something like 16% of all the Bitcoins there are have gone through blocks that mind that pool is that right um I don't know if that's the right number but it it's it's a lot High number it it was giant back in the day like It was the pool I used and I didn't know Luke and Jason back then I just it was the obvious choice it was 0% it was transparent you know um none of the other pools were but anyway Luke went away and started doing World core (15:32) development and Jason got

into hacking Teslas and did really well at it and discovered a critical floor in them realized he could control any Tesla in the world from his terminal and phed up the tech support on a Friday night and just asked the guy are you near are you near a Model S right now and I presume you asked him if there was like 6 feet of room in front of it so you could demonstrate the fact that you able to drive it forward a bit from your laptop and uh yeah I think yeah that's how it went

down and a few days later you're on (16:06) the phone with Elon Musk and that's how we got Luke unbanned from Twitter finally enough because of that personal relationship oh no way yeah oh that's cool yeah I don't know if that's really been mentioned much but yeah I had to make a call so which is a whole another you know situation um real fast mck Jason what In the world made you want to start trying to crack a Tesla just for the sheer challenge or or what like to be honest I don't really know I

had bought a Model S uh back in 2014 2013 or (16:40) something like that and it's basically just a computer on Wheels with some Motors and things so I I wanted to play do some things with the infotainment and kind of make some tweaks of my own I mean it turned out to be basically just a Linux computer and um one thing led to another uh t has a security researcher program and a bug Bounty program so I had joined that when I had found some like really small things initially when I was getting into

the infotainment system and one thing led to another and I find this bug chain that basically (17:13) lets me control any Tesla in the world and yeah so I basically asked him for a VIN this is the head of security research at Tesla at the time he gave me the VIN gave me about 10 seconds and I had that thing fired up and moving and he was just like I I got to make some call free so yeah that was that's always a fun story what a we could we could Jive on that I think

to The rest of the show but let's stay focused here so this is who we're dealing with folks this is this is the guy that wrote the new datam (17:44) protocol which is you know this is I shouldn't say this but it effectively it's almost like forking stratum V2 to kind of push forward this idea of decentralized templates so that if you mine a block if you're running your rig and you want to say this is what the the block template should look like these are the hundred transactions i w out of the Thousand these

are the ones that are going to be included and ocean is going live with this we're recording this prior to their launch but by the time (18:12) this airs it is going to be actively uh launched so walk us through what's happening in the background how did you think about this very simply for the audience how did you think about the construction of this to basically enable this type of a capability for the user so first off you need a pool that's conducive to this in the first place so there aren't other pools out there

that support datam which is to be expected but they're also not about to Support Straton V2 either not in that capacity (18:43) right they might Jason already mentioned one of the pools that allows you to at least have encrypted communication between the miner and the pool but it's still all centralized and you're still only doing work that the pool tells you you should do what we're doing with ocean we've made it work on the back end in a compatible manner for miners that want to run the datam protocol and make their own work locally and

all they do when it comes to Ocean is they reach out to us asking what the split is which is (19:10) the one legitimate purpose of a pool to exist you want to solve for cash flow so rather than I solve a block every 12 months I collaborate with 12 other people doing the same and I get to have a 12th of that every one month so it works out of the same amount of money but it means that you have way better cash flow right that's a crude example but that is the function of

a pool that doesn't mean that the pool's supposed to sit there and say hey by the way I'm going to tell you what goes in the (19:38) blockchain and what doesn't that is an Overstepping of a boundary and it's it leaves us wide open to regulatory capture and censorship and all these awful things so ocean is conducive to that obviously having invented data we've implemented it on our back end as of you know as of now there are no other datum supporting pools some may spring up and that would be great and uh yeah the

ramifications of that are enormous you have to design it in that particular way but the fact that we have means our miners are going to be (20:08) running their own nodes making their own blocks they reach out to Ocean to know what the correct split is if and when they find blocks it's their name that goes up there for everyone to see not oceans and importantly they broadcast the block to the network themselves directly they don't need to send it to us and then we tell the world what it was out we just cutting out

the middleman in every single place we can all ocean wants to do is say that guy did 20% of the work and that guy did 80% of the work here's the split use that (20:38) and your Shares are all valid on the pool if you don't want to use that you're Solo mining but either way you're Mining and you're in control of what you're doing this is the first challenge that I'm thinking through if you're going to go through this from like a game theory incentive standpoint let's just say that the three of us uh

are operating we're all providing hash rate we're all providing our own block template and let's say I find the block and let's say I'm a total idiot and (21:05) let's say that I fail to even uh or I I include the worst types of transactions into this that have the lowest fee and you guys are very frustrated because we're sharing the the payout right so how do you guard against the person who's submitting a block template that's participating in the pool but their submission for the template is just idiotic or super low fee when there

was an opportunity to have way higher fees in there how do you handle that when you're writing this datum protocol yeah I mean that that's (21:36) actually been a question that's come up a lot um so so one of the things that people have asked like what happens if somebody Minds empty blocks or if I mind this low fee blocks and that's What I want to do famously um Luke likes 300 kilobyte blocks which obviously aren't going to include as many transactions but he's going to be able to mine those with his Hardware on Ocean

so we had to come up with the to make it so that the other miners didn't have to subsidize that behavior by taking a lower reward (22:04) so the reward system on the back end treats the shares submitted by people using datam so they're going to be rewarded as if they had solo mind to that same block so if they if they had mined 20% of that block they get 20% of that block so if if you extend that out for a long period of time it will be as if that same person had been

solo mining that same type of block so if you mine empty blocks forever and you're expected to to find one a year within a year you will find three you will get rewarded (22:35) 3.125 Bitcoin but everybody else is going to take is you're going to get a smaller share of everybody else's blocks who are mining higher fees and it's not going to be determined by us it's determined by the miners themselves so where there's no there's no Central like this Is what we expect people to mine like no this is what people are mining

and this is what you are mining so your portion of what they are mining is different than what it would be if you were mining the same thing yeah so I (23:04) mean let's get down to like the philosophical question of it is it okay for a pool in our position to be treating one share as different to another right and some people this is going to set up an ideological red flag like why is the pool saying that this guy mining empty blocks his shares are worth less than the guy mining full blocks how

do you determine what should go in a block and if you are doing that uh isn't it just alar anyway shouldn't the pool just if the pool is going to have any opinion about what belongs in (23:33) blocks why even try and decentralize it if you're going to nudge miners in any particular direction I'm just steel Manning the the inevitable trolls that are going to come and come after us for this unfortunately you can't that ideology is not realistic in a pooled scenario because it leaves the pool wide open to Attack where a tiny pool

right now bit main if they wanted to could come along and destroy us in 5 minutes by mining completely empty blocks with nothing in them whatsoever and supposing (24:01) they come and do that and they're 50% of the pool with their attack which is like you know a rounding era for them they can come and do that mine blocks that have no transactions in them that don't even claim the subsidy right they don't even claim 3.125 Bitcoin they claim nothing and but they remain uh entitled to 50% of real blocks found by other people that

would mean every one of our miners is suddenly earning 50% as much the pool is dead in like hours it's over so it's it's incumbent on us as a pool (24:30) to make sure that people can't attack the pool by mining really stupid blocks but everything is going to be done transparently and it's going to be done for very defensible reasons right so there is just no other option and it comes down to if you really really want to do something unique that ocean doesn't like you can always just solo mine at the end of

the day that's at the end of the day if you Want complete and utter sovereignty then you you have to solo mine if you want to split rewards (24:58) with other people people you're going to have to play ball to some extent but as I said the transparency should make it palatable for everyone and it's just the real world calling right in if we want to decentralize Bitcoin mining the naive person is just going to say everyone needs to solo mine but we know that isn't possible it's not going to happen there's always going to

be Central points of failure the point is that those Central points of failure do as little as possible um having some sort (25:24) of reward mechanism that RI does what Jason said that is somewhat reflective of what people are doing with their blocks is an important part of it and I will just round off by saying that transaction fees are the difference between a miner that mines transaction fees and one that doesn't is a is between one and 2% uh of what comes in in blocking well 99% of what miners are earning comes from subsidy

at the moment and around 1% comes from transaction fee Revenue yeah which is it's so When people like the obviously podcast number (26:00) one that me and you did was mostly about the content of ocean centralized templates which is you know are we putting spam in there or not how much op return data are we allowing or not and it's just when you look at the actual numbers even for like enormous miners with hundreds of pet has you're looking at the difference in revenue of us excluding sulop returns and it comes out to like $8

a week or something for someone that's spending like 200 Grand on electricity a week and it's like it's (26:27) so irrelevant ction fees are so irrelevant at the moment we know they're relevant in the future but while you're still getting 3.125 Bitcoins coming out of the chain with new coins every 10 minutes you know a couple you know 400 bucks in transaction fee revenue or you know a th000 bucks is it's just nothing by comparison so these things may need to be tweaked in the future we may need some new ideas but we've got you

know 20 in 2030 you know I might start worrying about these things um or 2030 2 rather (26:59) cuz that'll be another harving I think Stuff like this starts to become complicated then for now transaction fee revenue is just it's almost irrelevant let me try to explain what I think is happening here and you guys correct me if if this description is wrong but let's let's use an extreme example let's say uh Jason let's say that the block template that you're submitting has zero uh fees uh like you're you're you're basically including the worst transactions

and has the (27:28) lowest uh fee each time let's say we the ocean just found a block the three of us bring our hashing online and we're not going to find another block for two weeks from now okay and so each each time we're submitting this our template Jason you're submitting the lowest the worst uh fees that that you could find out of the transactions that are in the menol mechanic let's say that you're finding about middle of the road and then let's say that I'm I'm always submitting the the highest fee (27:57) transactions into

my block template so the three of us are kind of all at odds with each other and we do this for a week straight and then All of a sudden the block is found and let's say that I found the block and I was submitting the highest fee transactions in there are we all paid equally in in that block that was just found based off of that history of the templates that we that we were constantly submitting for an entire week or are we paid out slightly differently based off of that history of the (28:26)

templates that we were submitting for the the week prior so the way the way the oceans reward system works it's very similar to pplns so it's we call it Tides we look back at the last eight blocks worth of work to determine what kind of split people get so it's it's not necessarily 50% of the work for the last block but it's 50% of the work for the last eight so there's a there's a smoothing effect there and that's part of the job of a pool is to Iron Out variants so we smooth that over

eight Network blocks (28:58) worth of work which is great now as far as the differing rewards and transaction fees that's a little different so what ends up happening is we assign a weight to the actual shares that are submitted based on what your template would bring In for everyone and because because of the way it works if you extrapolate the way that it's weighted out in the long term and let's say you're mining let's just for round numbers we'll say you're mining that bring in five Bitcoin so if you mind if you're expected to find

one (29:34) block a year within a year you would expect to earn from Ocean five Bitcoin because that's what you're mining if you're mining continuously a five Bitcoin block all the time and you're one of year you should get five Bitcoin now mechanic he's might be mining four and a half Bitcoin blocks these are outrageous numbers but but it illustrates the yeah he's he's including different transactions that have lower fee right okay yeah so so the split looks a little odd because you you're not (30:04) necessarily getting the exact proportion of mechanics block that you

would expect or he's not getting the exact proportion of yours that you would expect for the fee difference but the way it works out long term is that you are getting what you are mining uh based on your own template as if you were solo mining that Template with the with the pool in mind I I hope that makes sense it's hard it's hard to explain let's use real world examples right so supposing supposing you're a Bitcoin exchange and you have a (30:31) reasonably sized onchain footprint right you have you know a thousand people doing

withdrawals every day you batch them up but you're still doing like 50 transactions every day and you know that you're going to have that blockchain footprint no matter what and you're mining as well um I mean I can think of examples of companies that actually work exactly like this um they're going to put those transactions in their own blocks assuming that they're finding blocks you know if they're find in like (30:58) a couple of blocks a week this might make sense for them to do and why pay any transaction fee at all they can just

put them in for zero SATs a bite they can do that and if they're going to find a block with it they might as well do it the point is that shouldn't be there was a not an opportunity cost an actual Financial cost um to doing that because they could have put in transactions that paid more in any scenario Where there are more transactions out there for them to put in which is you know 24 hours a (31:26) day there there's never block blocks that are lacking transactions at the moment there's always enough to go

around to fill up the block space so the whole point is that that is not on every other minor on the pool to subsidize the fact that you're not going to use the block space for for some lucrative transactions so you can do it as an exchange you can start putting your transactions in the block and you'll get slightly less CU your Shares are reflective of the fact that you're trying to mine blocks that wouldn't be (31:56) quite as lucrative for everyone on the Po and the people that aren't doing that that are just you

know dumb profit maximizing algo miners that just start from the top down and whatever's most lucrative that's where we start and we go down from there until the block is full and we update every few seconds those miners are going to absolutely max out what they can get per share and that's that's yeah that's the real world example of it I love that I think that's fair I think exactly that's the idea it (32:25) has to be fair because we we don't want you paying for something that someone else is doing and I don't want

to pay for something that you're doing yeah it's the only way to run a pool I think I I think if you if you if you want to go la fair with it which is just let anyone mine any block that can do anything they want and treat all shares as equal as I said that opens us up to attack immediately you can just start mining deliberately nasty blocks and because of Ocean's size being so small (32:52) um you don't need you with a couple of EX aash for a couple of days you can ruin

the pool and we can't let that happen we owe it to our miners not to let that happen and because we're permissionless we could never stop it on any other level right if centralized pools that required kyc and all that stuff wanted to do what we're doing with templates they could more aggressively reject people that we doing silly stuff like that and say right we know who exactly who you are because we have you know your your government ID your (33:21) credentials all that stuff you know you we we assign specific IPS to your facilities

And you're only allowed to conect if we have the right credentials and all that stuff if you want to troll us we'll just kick you off the pool but Ocean's permissionless so we have to find other ways in which we can say hey everyone is forced to be sensible and that's the only way we can maintain the ethos of the whole thing you know it's interesting since you guys launched I've talked to two different people that mine (33:49) using the ocean pool and both of them and this was not at the same time this these

were two different conversations in two different locations at two different times uh both of them swore to me that they make more money on the ocean pool than they had with any other pool and I say this because I think an outsider who's only kind of observed and seen what ocean is doing especially with the templates that they can I think there's three templates that they can choose from um appear to have less fees than other pools that are just (34:24) maximizing for the highest uh paying transaction so how is that possible what what's happening

in the background that This outside Observer is totally missing uh I'm assuming these PE I mean these people are very trustworthy individuals that I that are providing in my opinion quite a bit of hash rate how is this possible explain this to The Listener who hears this and they're shaking their head like come on there's no way yeah I think like incredulity is natural but certainly our miners have been making (34:55) more and there's a very very obvious and intuitive reason for that is that we cut out a middle n that's all so my analogy

for it is um supposing you're like you can plant crops yourself and farm them and you might have a good year or a bad year like you get you know 800 tons of apples one year and then next year it sucks for whatever reason the weather was bad if you if you can't deal with the fact that there's variety there some years are good some years are bad you pay someone else to go and farm on your (35:23) behalf and they guarantee you a set amount of apples every year they're going to make a low

guarantee because they don't want to be on the hook for stuff that simply doesn't exist so in the Bitcoin mining world with ocean Miners have to deal with variance right some blocks might have no transaction fees in them some blocks might have millions of dollars of transaction fees in them we don't know we don't make any guarantees to that effect what we do say is that if you're 50% of the pool you (35:50) get 50% of what comes out of the chain that's it we don't even touch it the minute that money exists it's already

yours and you can't even mine and unless you're using a Bitcoin address so we we won't even let you mine with us unless we have a way to give you your money or when the money gets created it gets created on your address not anything to do with us none of the other pools operate this way anymore with a couple of very small exceptions everyone else has opted for that model I was talking (36:18) about where someone goes away and says don't worry about farming I'll go and like do all the I'll plant all the

trees I'll I'll deal with the weather sucking some years I'll deal with the fact that a volcano erupted and made there be no sunshine one summer or something like that I'll guarantee you apples if they do That that is a type of insurance product that is an extremely expensive product to offer for people it's great because if you're selling apples and you know exactly how many you're going to (36:45) get that's pretty nice to run a business that way but it means you're getting a lot less apples because no one is going to put themselves

in a position where they give you everything you could possibly have gotten by yourself taking on the variants someone's got a deal with the variance of the blockchain and it's unpredictable we don't know how many Bitcoins are going to be created over any one time period one of the most common questions I get asked from family and friends is Preston where do you (37:09) personally buy your Bitcoin from and the answer is really simple I buy it on river.com not only can you easily buy Bitcoin with zero fees on recurring orders you can have peace

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the first step schedule a free consultation today (39:02) at the Bitcoin way.com stip and every single minor pretty much or I'd say around 98 to 99% of miners on the network at the moment are out there saying I don't want to deal with variants I just want to get paid a consistent amount so I don't have to think about it and the middlemen that sprung up to um you know uh create a business to that effect are taking a massive cut for themselves because they have to otherwise they'll immediately go bankrupt because of how unpredictable

the blockchain is so with ocean it it (39:36) takes the opposite approach it Just says miners we don't want to be a middleman Come Along come and deal with the variants you might have three days that suck you might have one day where you earn eight times what you expected you don't know but the point is at the end of the day you're going to get more Revenue if you can handle it so it's the low time preference pool it's the pool that says if you don't if you're not worried about the next 24 hours

but you want to have a better month than you (40:01) would have anywhere else come online on Ocean but the flip side of that is if you cannot wait an entire month if you're if you're into clown World Fiat games and you need you need everything to work out over 24-hour period and you need all of the right paperwork and all that stuff and you don't want to deal with the nasty Cipher Punk blockchain and all that stuff if you want to just rent your hash rate to someone that will give you a fixed amount

for it you can do it but obviously you're not going to (40:26) get the same Revenue so it should be pretty intuitive right and it's funny because the irony is we had uh you know functional spam Filtration when we launched with a centralized template and everyone was like well that's open and shut case there's going to be less money for the miners mining on Ocean and then every single report came out and said no I'm earning more uh so why is that and it wasn't just that right we had a bunch of other factors we

got unlucky with our blocks we got unlucky in times of (40:54) historically High fees so we got unlucky during December 2023 and we got unlucky during the Haring not finding a single block um we found three empty blocks which was insane U because for some reason ocean likes to find blocks 8 seconds after the last Network block which is when they're very likely to be empty um we we've been in you know but you still got the block reward it wasn't like there was no block reward correct sure but I mean that's for people to

know though you got these compounding (41:22) factors that meant ocean should at least have been paying out the same as other pools or slightly worse but it was it was coming in above 10% better than all the others and everyone's like how Can this be ocean charges 0% fees the other pool charges 2% and I got 16% more mining on ocean that doesn't make any sense to me they've been unlucky you know all these things and it was just because hey it's very simple the other pools the fee they charge you does not mean your

split from the blockchain (41:50) minus 2% that's not what that means ocean is giving you a direct split from the blockchain other pools are giving you an fpp PS calculated rate minus 2% now the fpps calculated rate doesn't match up with what comes out of the blockchain and when you dig deep you realize that no one could afford to run an fpps pool anyway unless they have enough provisos and quidd pro quos and you know terms and conditions and all that stuff that could mean hey if I go on an unlucky streak I'm not bankrupt

in 24 hours I can still run my pool so they (42:22) have to take a big cut to do that and the point is it gets bigger and bigger and bigger because bitcoin's fee bitcoin's fee Revenue gets less and less predictable versus subsidy every Haring it becomes Harder and harder and harder for miners to predict what they're going to bring in from the chain so fpps is basically a dying model ocean comes around at the same time you know the whole concept of what we wanted to do was um decentralize templates but then the payout

system started to become one of the most important things about (42:50) what we're doing because we're looking at fpps we're saying miners have all gone for the centralized option of I want guaranteed income don't care about overall Revenue I don't care about having any sovereignty in this I just want consistent income and then a bunch of companies come around that say we can provide that for you we will be the most insanely large middleman we will take an enormous commission that won't be included in the percentage we charge you it will be a separate kind

of commission (43:17) like those airports that say you know 0% currency conversion commission and and you know it's nowhere near market rate you know you're off by like 15% but it says 0% right it's just not included in that so I think everyone agrees Like we've got some friends that work for fpps pools that are like yeah this is over we can't maintain this like the this the cut we have to take to be able to weather any unlucky storm is just so big that it's eating into miners Revenue too much we hate doing it

miners are (43:48) losing loads of money doing it too it's over so the fact that ocean came around to decentralize templates at the time that the dominant payout method would also be kind of dying is uh a sort of you know it's kind of poetic that that happened because we're saying look you guys you've gotten used to the free lunch and it isn't a real thing and it's not sustainable no one is going to say hey I'll pay you 50% of what comes out of the chain if you're 50% on my pool and I'll do

that no matter what happens (44:16) even if I go unlucky and don't find any blocks no one's going to do that it's Bitcoin no one's able to print this stuff and say don't worry miners we'll just bail you out right if you get in of your head it's Bitcoin that's the whole point is that you can't play those kinds of games just for folks that are listening the The term fpps stands for full pay per share this is a common term in the mining space for how the uh reward is paid out to everybody in

inside of the pool I have heard and I can't remember (44:44) the explanation that I had heard from somebody as to why uh ocean is struggling to get large uh mining you know publicly traded companies to start participating on the pool um help Help The Listener understand why or what type of roadblocks you guys are running into and what effectively needs to be solved for the bigger uh the ones that are providing large amounts of hash rate to start utilizing the pool I mean there's there's not a whole lot on the technical side I mean

on the technical side it works just like any (45:15) other pool currently um with decentralized templates we're trying to keep that inertia low as well a lot of it seems to be um some regulatory stuff that's not even really regulatory like uh like sock to compliance and things like that that's what I had heard so what is that yeah how we understand um my understanding of it and I'm not an expert here um is that that's it's kind of a framework For auditing how the how a company does things internally U to make sure there's

processes for (45:45) onboarding and offboarding for example and to monitor what employees do and and all all this um all this framework that you have to kind of fit into in order to make um in order to get this piece of paper that says I'm compliant and a and a lot of people a lot of these companies look for that even though in my opinion that piece of paper is not really good for anything um it just says that we jump through these hoops okay uh that doesn't necessarily mean you're secure doesn't necessarily mean you

have a a product that's worth (46:16) using it just means we jumped through these accounting hoops and from looking at that we actually looked at trying to do that because that's been requested by some of the larger entities that are like we like what you're doing and we want to we want to jump on board but we need this check box and it's it's not been an easy thing because for us what we're doing is so far outside of these boxes that they put this compliance stuff in that it it doesn't work very well I

think we'll be able to pull it (46:48) off um as a company I think we'll be able to do the sock two stuff but it's not g it's not super easy because we are we're permissionless we're non custodial like we don't have we don't have the information that some of these audits really want and frankly some of the things that they want to audit do make uh some of the processes less secure and we want to be secure we don't want people to be able to get into things in Ocean and cause problems for our

customers and I I like to think that we do a very (47:17) good job on that and by going through these processes and having to change some of that to fit molds we're now we're now creating a larger attack for things if everybody has to do something one way we we run into the problem is like well all the attackers only have to find one way in and it's it's kind of It kind of ends up being like um like the recent thing with Cloud strike um yeah all of all of these companies used this

one compliance related software in order to check that box and look what it did (47:49) yeah I I don't want to be one of those um and I think we need a better we need a better Route and I think a lot lot of it is these companies need the stops require IR iring everybody fit into this box which that that's a longer term chain the the irony is is that it's a security thing that they basically want you to have data that then can be audited and you're saying hold on we're going point to

point here we're not we're not collecting the data by Design exactly so that it's more secure so that (48:16) it's more well you got to collect it so that we know you're doing it securely and we're like it's definitely more secure to not have it in the first place government bureaucrat I don't understand sorry you just need to get this and like joke about them saying like we want to look at your private keys to make sure they're securely generated like just you know the government bureaucrats idea of what like a secure Computing process is

is just painful and it was a pretty nice vindicating moment when crowd strike (48:43) happened and we're like yeah this is we're not going to have that and it is a sock to compliant thing is crowd strike like that is one of the ways the Box tick and we're like Demonstrably this stuff is not good so but I to to go back to the question you originally asked um the first ex aash is the hardest uh and we got that and then we got the second ex aash which came a lot easier uh we're below

that at the moment but that's just you know it goes up and down but we're getting there and the bigger we get the (49:13) easier it is for other people to join because the lower our variance gets the tradeoff with ocean just so I can fairly present everything and not just pretend where the magic fix for everything uh is you have to deal with variants when you mine on Ocean uh and for some some people they just can't deal with that I do know miners that have to pay power bills every 24 hours an ocean

will definitely go 24 hours without a block and does so between most of its blocks so that's not viable however if we gained another 50 XA hash tomorrow then (49:41) it would be viable and the more hash rate you get the more easier it is for other hash rate to come on so trying to get the party started is incredibly difficult but once it's there and there's loud music blaring and lights flashing All over the neighborhood other people do just start showing up right no one wants to be the only guy at a party so

it's it's very much just like that do do you want me to show you a dam client running yes definitely let's see that all right let me share my screen and for (50:10) people that are curious sock 2 stands for service organization control too I don't know it's government stuff well while they're doing that one of one of the things about sock 2 is like their their big thing is protecting customer data and I I I just find it quite ironic that it's something that people want of us when we have no customer data so

just just throwing that out there so yeah you can see my terminal screen here right MH correct okay so this is a Bitcoin node up top doing what Bitcoin nodes always (50:40) do this was the last block we found uh block 862 560 uh but you can see these create new blocks that's the datam server reaching out and saying can you create oh we just found a new block and then immediately datam said I need a new block template and that happened in like you know 90 milliseconds or something Insanely quick like that down here

is the datam server so you can see I've got I've got a little Avalon in my bedroom keeping it warm um that's the one stratum client that's connected to my (51:10) datam server that's doing work I created using my node and the datam server also reaches out to Ocean and says I need the coinbase split to include in these blocks I'm creating and ocean provides that and what so what that means is I'm essentially solo except I'm going to get reward splits on Ocean because all of these all of the proofs of work I do

here I submit back to my datam server and then that gets submitted back to ocean and ocean says yep these are all valid and these all have the correct (51:40) split so you're entitled to a split of what happens uh with every other block on Ocean so this is the dream this is how pooled mining should actually work and it does I'm actually doing it now and that's it so it's super lightweight um you can just run this on of a Bitcoin load there's a tiny bit of configuration that needs to be done but it

is very very simple and uh I even have it packaged up for start 9 uh If anyone knows start OS which is one of the you know the node solutions that people have (52:12) where you can just run your own Home Server company I used to work at and it's all preconfigured there so it's really easy you just install datam and it sits on top of the Bitcoin node it configures itself to work with it and then you just point your miners at it you you know you get the IP address of the server you

get the port of the service and that's it then your miners are all mining your own locally made work and you don't even need to change any of the usernames or anything if you already on Ocean before it all just (52:39) works and goes straight through and if and when you find a block you get to stamp your name on it that's the secondary uh coinbase field uh and you can write whatever you want you can mind blocks that say Preston pish and then you get you still get cash flow all year but when you

eventually get lucky and find that block after a year or 3 years or however many years it takes you to find a block with whatever hash rate you have suddenly that's your name Up there and it's a bunch of transactions you (53:06) wanted that can be a lightning Channel open right that you wanted to pay one sat per bite for that was 10 million SATs in size and you can use it for years it cost you nothing to open it right and you waited around you're happy to be patient that's that's what we're buil in

here and well I should say that's what's been built it works at the time of this recording which is 23rd of September but this thing is probably going to be uploaded in a couple of weeks and by that point if we're lucky (53:33) someone will have already found a block on ocean that was made locally with their name on it and at that point we've done what Bitcoin needs which is if someone comes to a mining pool like ocean and says you have to be ofac compliant or you have to observe this Blacklist of transactions

we get to say we have no control over that you need to go and find the minor that did it here's his Bitcoin address good luck that's what Bitcoin needs and that's what we've built yeah I love that last comment (54:05) because that is truly what keeps Bitcoin Decentralized and uh operating its core Mission which is free and open decentralized Money where nobody has to ask for permission and no government can stop it guys this is mindblowing uh Jason huge kudos to you sir and and your contribution here mechanic Bravo sir I love the fact

that you're running this already how exciting um again in this in the show notes we'll have the link to our first conversation uh which goes into a lot more detail on just like block templates and and why they're (54:43) important and whatnot um anything else that you guys want to highlight that I know the ocean website is ocean. XYZ um if people want to look at that look at the hash rate there's all all sorts of really cool metrics you guys uh Jason are you active on Twitter I know mechanic is yeah I am I'm

wk057 on Twitter okay all right we'll have a link to your Twitter profile in the in the show notes and anything else that you guys want to highlight yeah I guess uh I guess the big thing is we're we're trying to move (55:13) from something that miners are very comfortable with which is just setting up their machine pointing it at a pool and and dealing With that and we're trying to literally put more work on them for the good of the network that's not necessarily an easy thing so the inertias has the inertia has to

be low and I think we've accomplished that with datam by making it as easy as possible to go from where you already are as a miner mining on a pool in a centralized capacity to mining on your own node I don't think we could make it any simpler (55:45) than it are than it is now and I think that was a big important thing about it because if it was going to be incredibly difficult and Incredibly complicated to do this regardless of how good it is for the ecosystem they we're going be a limited amount

of people doing it so and that that's a big that's a big checkbox that I think we've pulled off yeah I think it's good to reiterate this um Bitcoin needs some decentralization uh and it needs it yesterday and we need practical solutions for that and this is (56:13) what that is I love it if people are operating their own mining rig and they want to participate in this how can they uh how can they learn more just go to the ocean. XYZ website or or what do you guys suggest you can just harass us on

Twitter you can come in on Discord you can do anything you like Luke is very active on Twitter as well um we're very very quick with the support we're on Noster as well um and you know you can carry on watching these podcasts we're going to hopefully do a few more (56:43) explaining things um once it's up and running um I'm planning Bob berett who you know as well he wants to do an old man yells episode on that as well and we can get into some more technical aspects maybe yeah there's a bunch of

things we can do and uh yeah all right fantastic guys thank you for your time today this is mindblowing stuff that you guys are doing I'm just sitting here in awe like looking at everything that you built um but thank you so much for making time and coming on the show no problem thanks (57:13) thanks for having us most people are still you meet them hello how you doing I'm into Bitcoin oh that's all a scam I know someone that lost loads of money with that what did the person they know by Dogecoin and you're

saying there's Nothing to do with Bitcoin but they don't get it now imagine how difficult it's going to be when everyone got rugged on bitcoin because of tokens on bitcoin that weren't actual Bitcoins that was just a brc2 token mint that happened on the Bitcoin blockchain how (57:39) difficult is it going to be explaining the Oracle problem to all these people