Poolin, just over a year old and already trending as a top two mining pool, is a bit of an anomaly in the mining industry as a China based company with public views on Bitcoin’s development that mirror Bitcoin Core’s.
CEO Zhibiao Pan started in the mining industry as the founder of TangPool in 2014 before joining Bitmain and later running BTC.com there. He left the company in 2017 amid the hard fork drama and ended up founding Poolin, along with former BTC.com employees and current Poolin COO Fa Zhu and CTO Tianzhao Li.
That process has become a charged topic with lawsuits filed by both sides, a situation that underscores the fiercely competitive world of Chinese technology competition and the mining industry specifically. In the meantime, Poolin now consistently ranks in the top-five pools by hash rate and even briefly unseated BTC.com, for the number one spot.
Bitcoin Magazine interviewed Poolin at the Chengdu Miner Summit to glean its perspective on its incredible growth, what it takes to be successful in such a highly competitive field and what mining centralization in China means for Bitcoin's growth.
This interview was originally conducted in Chinese; below is a translated script with edits made for concision and clarity.
Poolin’s Growth
BM: Poolin has seen rapid growth but is still a relatively young company, even by Bitcoin's standards. You’ve been through intense competition, growth, consolidation, turmoil and more growth in your time in the industry — why start a new mining venture after leaving Bitmain and why a mining pool?
Kevin Pan: In fact, I did run a mining pool in Inner Mongolia in 2014, which was called TangPool. Unfortunately, I had a hard time in the bear market in 2014, so I chose to go to Bitmain. At that time, I did a blockchain browser, and later a mining pool and some other software services. When I left Bitmain to look for new opportunities, I decided to build a new mining pool, considering that was what I was good at.
Poolin became the largest mining pool in the world, for a time, at the end of September. Was that a goal in your growth plan and how do you manage the added scrutiny that comes with that?
KP: We're just trying to make our products and services better and better. We're not trying to compete or fight with others. If you're doing your own thing well, at the product level, and doing the best you know how, then you will naturally do well. As for being the largest mining pool, we are confident about that. Although we are becoming the largest mining pool in the world, the scrutiny has not changed greatly.
What has been the key differentiators for Poolin that allowed it to become one of the largest platforms in the midst of intense competition?
KP: From the beginning, products and technologies are more important, but in the later stages, a mining pool should act as a neutral platform. The mining pool is essentially a bridge between mining hardware manufacturers and miners.
State of Mining in China
We are speaking at a large mining event in Chengdu, with companies across the spectrum of PoW represented here. What is the state of the mining pool business within that ecosystem?
KP: Satoshi Nakamoto's original idea for mining was one CPU, one vote. However, due to the coming of ASIC miners and [mining ’s] gradual development, there is no way for solo mining to be viable anymore. With only 144 new blocks available each day, the mining pool structure inevitably materialized as a proxy for the miners. Now, the top 10 mining pools in the world control 95 percent of hashing power.
Personally, I think the current status and power enjoyed by mining pools is a little too much; for example, they have custody voting rights, they can choose which transaction is packaged and so on. But poolsharing is here to stay, so I think some new protocols will further decentralize some of their custody voting rights and transaction packaging options in the ecosystem.
How important is China as a center for the ecosystem? Are you seeing any changes in its relative importance?
KP: The reason why China is the center of the mining ecosystem is that China can both produce a large amount of hardware and provide on-site assembly. For example, Shenzhen has a very strong supply chain, and Shenzhen's electronic consumer supply chain is absolutely the center in China. So overseas mining machines were made in Shenzhen at the beginning.
Later, we found that more and more Chinese people entered this industry, so they began to promote it. Factories in Shenzhen can run all day, which is unmatched by factories in the United States, Europe or other places, so China quickly played to this advantage.
Manufacturing, energy and capital have positioned China at the center of the mining ecosystem.
People have also discovered that China is actually energy rich, with thermal power in the north and hydropower in the south. Chinese people are capitalizing on China's advantages: a mature supply chain, a strong industrial base, and a huge amount of cheap electricity. Moreover, now there's a lot of money flowing through China. So manufacturing, energy and capital have positioned China at the center of the mining ecosystem.
Is it possible that another country could become the center of this system? Yes, like the United States. America has very rich coal reserves, even larger than China’s, and it is the richest in hydropower resources in the west. At the same time, America has the most money of any country and the dollar is the world's reserve currency.
Therefore, the only difference between the two is manufacturing. But hardware can actually be shipped to handle this. If necessary, they can even be shipped by air. So I think the United States and other North American countries have opportunities here.
Is running a mining company in China more akin to having a startup in the tech sector or a startup in the industrial sector?
KP: For us, running a mining company is more like working in the internet industry, like starting a business in the technology industry. Yesterday, a speaker at the Chengdu Mining Summit suggested that Poolin is a mining pool software service company with “internet genes,” while other companies may be more traditional.
State of Bitcoin in China
The image of Bitcoin in China has also undergone some changes and segmentation. How has your thinking about Bitcoin as a technology evolved through time?
KP: The image of Bitcoin in China has actually been improved by businesses and bubbles. In the past, everyone said that Bitcoin would just be associated with money laundering and so on. Then we saw the emergence of blockchain technology — along with the so-called coin-free blockchains proposed by some semi-official institutions which, of course, were also ridiculed by the veterans in the Bitcoin space.
The public regarded blockchain as a brand-new high-tech innovation. Many companies were starting to explore it, and investment banks would consider investing in it, but when it came to Bitcoin, this was not the case. Although many of those large blockchain projects aren’t functional now, and the consequences of the recent bubble are also very serious, the upside is that it has made the concept of blockchains really popular in China. This includes financial products, such as Decentralized Finance and Defi, which are now being proposed.
Nowadays, people feel that financial products such as Decentralized Finance and Defi are more high-end, so blockchains, including the Bitcoin blockchain, have a better image in China. However, the owners of the mining camps are reluctant to accept reports from the mainstream media, because the regulatory risks are very large. Thus, mining ventures in China are destined to have difficulty getting to the forefront in a short time. At present, mining companies can only get positive attention by using the narrative of “blockchain technology” or some other new technology packaging, such as artificial intelligence.
I personally think Bitcoin is the best asset allocation. Nowadays, I am always talking about the problem of scaling. In essence, Bitcoin does not need to be scaled. There will be many problems if it’s too complicated. At the moment, everyone is talking about the layer two network. In fact, exchanges and off-chain wallets such as Bixin are also layer two networks (not just the Lightning Network). A large number of users are transferring assets every day through exchanges, such as Bixin.
The real problem with Bitcoin may be privacy. There is no other big question if the privacy issue is solved. The Lightning Network does not affect the characteristics of bitcoin in terms of currency, but issues of privacy will hinder the liquidity of funds. While there are ways to analyze the flow of funds on Bitcoin, with Monero (XMR) or Grin using the Mimblewimble protocol, the liquidity of digital currency will not be hindered by external forces, so the control of the mining pool will not hinder the liquidity of funds.
What is more troublesome now is if government or law enforcement departments begin to create a blacklist of transaction addresses, it will make certain transactions unable to be packaged. In fact, these can be done. But if there is privacy, you can't know who the address belongs to, and you can't determine how much the amount is, and there is no way to control the currency system. So for me, Bitcoin is basically no problem if the issue of privacy can be solved.
Contributing to the Community
Has your view of the miner’s role in Bitcoin evolved? Are foreign miners only concerned about economic benefits?
KP: In essence, miners are a profit-seeking group. Simply put, they should only care about making money. As long as an economic behavior can make money, of course there will be someone willing to act accordingly. The vast majority of miners do not behave out of a sense of morality or with the intention of protecting the blockchain. When it comes to mining, the miners only want to make money.
I think this is the best situation. Only by relying on a long-term and effective economic incentive mechanism will Bitcoin be reliable. Therefore, miners in this industry are investors under this effective economic incentive mechanism.
In contrast, foreign miners are better in this aspect, and they will have more people who know bitcoin. I met a foreigner a few days ago. He said that he was going to withdraw his hash power. I asked him, "Why? Is it that we are not doing well enough?" He said no, just because Poolin is now ranked first in computing power. So he wants to transfer out and help maintain decentralization.
Only by relying on a long-term and effective economic incentive mechanism will Bitcoin be reliable. Therefore, miners in this industry are investors under this effective economic incentive mechanism.
This is very interesting because Chinese miners would never do something like this. Some foreigners are willing to sacrifice a small portion of their short-term interests to look toward the longer term. It is especially good to have such a person, but in fact, Bitcoin could develop very healthily, even without this sort of person because the whole mechanism is well designed.
You have also supported Bitcoin core development. Can you talk about how that support came about and the value you see in core contributors now?
KP: In the Chinese Bitcoin space, few people will publish any academic papers, but at international conferences, we can often share new technical ideas. China has basically made no achievements in this respect. I think this may be caused by our social development stage. We have not yet entered a stage where the economy, as well as academic pursuits, are highly developed.
In some universities in Japan, people are publishing some research papers about Bitcoin. Now that there are a lot of companies in this industry in China, I started a fund called Hardcore Fund; Poolin donated 10 bitcoin to it and Bixin donated 5 bitcoin. In total, the donation count is around 50 to 60 bitcoin. As a member of the Bitcoin community, we should form such a culture to support these core developers. Many of them have given up opportunities at FAANG companies to do this. Therefore, given that they have sacrificed, we are also willing to support them.
Their core value is that they know what they're doing. They know what Bitcoin is and what the most suitable features for Bitcoin are, and they will not be swayed by external interests.
Their core value is that they know what they're doing. They know what Bitcoin is and what the most suitable features for Bitcoin are, and they will not be swayed by external interests. They will continue to research. They realize that since we have the most stress-tested solution in Bitcoin, we should focus on this and not something new. Why would some people want to choose a hard fork and make bigger blocks?
The core developers adhered to this logic and won over the entire community with the fork wars. In the end, the community and market chose BTC instead of BCH or BSV. Therefore, these coders have proven that they are able to stand on their own ideas and not be disturbed by the outside noise.
In contrast, commercial companies always have short-term and long-term goals, and the interests of commercial companies cannot be completely consistent with the community. The ultimate goal of commercial companies is to make money. The purpose of shareholders, senior management and employees is to earn more. Many people in China may not understand because they always feel that success means making a lot of money, but when it comes to defending principles and integrity, it is not the same.
Running a large pool, do you see your responsibility as being larger than simply serving customers as best you can?
KP: It is actually okay to take responsibility. The customers will leave if you cannot provide good service. There should be no mutual deficiencies. The miners actually get paid every day, so the biggest problem is owing them their one-day salary. Now, operating the mining pool is still quite a technical challenge, requiring the entire system to be stable 24/7, so I think it is quite challenging, and the threshold for running a mining pool will gradually become higher. It may be relatively easy for an organization to start a mining pool. However, sustaining it is another thing.
The Upcoming Halving
So, do you think Bitcoin will see another bull market before the halving next year?
KP: I expect there to be a bull market, but it may come after the halving. The halving is a very strong economic signal; that is, bitcoin's daily inflow is cut in half. In fact, the small amount of money placed on the market may not have a real impact on the market because there are only 900 fewer bitcoin mined each day. It may not be as effective as bitcoin's daily trading volume, and it will not produce actual impact. It may be more of an impact on the consensus. In terms of price fluctuation, it may be that the psychology is greater than the actual situation. Everyone needs to have such a reason to pull the price. Actually, the market needs such an opportunity.
Can retail investors now enter the mining industry? How much is needed if you want to enter?
KP: If retail investors want to enter the market, they will certainly not build their own mining factories, right? That requires millions of dollars, including people, venues and power sources. So the easiest way is to buy five machines and host them at the mining factories. But the mining factories are more willing to host hundreds of mining machines compared with those retailers with a small number of mining machines. A mining machine costs 10,000 yuan. If you want to scale up, you need to buy 100 machines and you need 1 million yuan. The number of people who can afford this is very small, so retail investors are far away from the mining industry.
From files contributed by John Riggins