Mining pools serve a crucial yet relatively mundane role in the mining process by providing a focal point for hashing power and enabling small-scale miners to collaborate with others. If bitcoin mining is a competitive sport that pits miners against each other to discover new blocks and generate more bitcoins, then mining pools are the teams on which they play.
Still, despite this importance, mining pools have not been the most transparent sector of the crypto economy.
A brief look at a bitcoin mining network hash rate distribution shows three clear winners in the race to discover blocks. Joining the ranks of GHash.io, owned by exchange operator CEX.io, and a still-yet-unknown source of hashing power, China-based Discus Fish has emerged as a powerful force in the network that, to some, has been too opaque in its operation despite its size.
The pool, based in China, currently constitutes roughly 25% of the bitcoin network, and on average is the largest source of hashing power today.
This level of influence has raised concerns about a potential 51% attack, fears similar to those that ultimately forced GHash.io to take measures to reduce its hash rate.
While the pool has never amassed enough hashing power to approach that rate, Discus Fish – also known as F2Pool – could face calls to shrink in the future should it continue to grow.
Breaking the silence
CoinDesk recently spoke with the pool’s co-owner and chief administrator, who wished to remain unnamed. He described Discus Fish as a venture between two Chinese technology enthusiasts that has, over the course of its history, addressed some of the frictions in the country’s mining community.
The administrator told CoinDesk that he and his business partner, digital currency entrepreneur Mao Shihang, were early adopters of the technology, but that despite early growth, mining remained a key weak point. Prior to the pool’s creation, he said, China didn’t have a locally dedicated pool.
“We both have been active in the Chinese bitcoin community since 2011. BTC China, a bitcoin exchange, was established in July 2011. But China did not have a mining pool for a long time. The founder of fxbtc.com (now closed) tried to create one of the earliest China-based pool in 2012 but ended in financial failure.”
Discus Fish opened its doors on 5th May, 2013, and in addition to its bitcoin mining power, also makes up roughly 30% of the litecoin network. Today, it sports on average 7,500 active users out of a total 100,000 registered.
According to the pool’s estimates, Discus Fish services half of China’s mining community with more than 100,000 stratum connections worldwide.
Prior to its formation, the Discus Fish admin explained, he ran a private mining farm between 2011 and 2013. This early involvement laid the foundation for what would eventually become the pool, building the expertise to manage and run a large-scale operation.
A meeting with Mao and a couple of other businessmen interested in bitcoin soon resulted in the formation of Discus Fish. He said that the pool discovered a block on its first day of operation, which helped it gain attention and led to an increase in its user base.
From there, the company soon branched off into related projects, including a China-based bitcoin news venture and a scrypt ASIC project called Silver Fish, which also runs a separate litecoin mining operation in addition to Discus Fish. According to the pool administrator, these side projects are independent of Discus Fish, and the team is still focused on long-term growth.
“F2Pool is operated independently from these new businesses. Mao is mainly working on marketing and public relationship for F2Pool, while I am focusing on the technical and financial matters.”
On the 51% issue
With a growth-oriented strategy, it seems possible that Discus Fish could continue to grow in size and influence relative to the overall size of the network.
Discus Fish dismissed the issue as one not worth focusing on at this time. When asked whether Discus Fish would ever take action if its total bitcoin hash rate approached or exceeded 50%, the administrator said that the public perception of the issue is not fully aligned with reality.
Citing data from Blockchain, he said that many large pools rarely rise above 40% for long, and noted that those metrics are not always accurate. He argued that it would be difficult for Discus Fish to reach that level today, but added that if that were to happen, the company would consider mitigation efforts such as raising fees to dissuade miners.
The administrator remarked:
“If we do [see a significantly higher hash rate], we may consider increasing our fee make some miners leave for other pools.”
Though well-positioned currently, Discus Fish highlighted the emergence of new pools both within China’s bitcoin and litecoin mining communities and abroad as a potential long-term concern.
However, the administrator stopped short of speculating on the future of Discus Fish, saying:
“Pools come and go. We all remember Deepbit, and others. It is hard to say anything one year from now.”
He added that “we must constantly improve our service” in order to stay competitive in a global market of miners always on the lookout for better – and more profitable – mining pools.
When asked about the future of Chinese bitcoin regulation as it pertains to Discus Fish, the administrator siad that he hopes that pools will be allowed to continue serving their function in the mining network.
The administrator cited the fact that pools don’t touch government-backed currencies as reason for the sector to be lightly regulated. But given the fact that mining pools form are a kind of utility in the space, it remains unclear how regulators will approach the business model moving forward.
“Mining pools do not involve fiat money. I think it should not be a bigger target of the regulators than an exchange,” he concluded.
Still, despite this importance, mining pools have not been the most transparent sector of the crypto […]