The world of cryptocurrency mining is a highly competitive and often cutthroat business.
Although a major trend in recent years has been away from proof of work (PoW), a system that relies heavily on miners running equipment that “mines” new tokens through running intensive computations, and toward proof of stake (PoS), which relies primarily on validators locking large sums of tokens away, PoW remains an incredibly important cornerstone of the cryptoverse.
Bitcoin BTC/USD famously relies on PoW and the miners that participate and compete for new BTC. There exists an interesting phenomenon within the Bitcoin ecosystem that is a beautiful example of the principles of supply and demand made manifest. Every four years, the difficulty of the Bitcoin network doubles and with it, production is cut in half.
When this happens, the value of Bitcoin tends to trend upward as the market adapts to the decrease in new supply. However, this is a gradual trend and in the meantime, miners’ incomes have been cut in half. This means that many miners, especially individuals and small operations, are no longer profitable and without the necessary liquidity to wait until the price corrects, they must close shop.
And this trend is evident in the BTC mining community. What consisted of individual hobbyists, enthusiasts and renegades just 10 years ago has been replaced by big business. The vast majority of mining operations are now concentrated into companies with serious capital behind them, squeezing out the little guy.
Other coins that have employed this system, like Litecoin LTC/USD, have seen a similar pattern emerge but magnified because the price action has not compensated for the decreased production, leaving thousands of miners in the lurch.
The project Seasonal Tokens may be one example to have found a solution. The project consists of four tokens — Summer SUMMER/USD, Autumn AUTUMN/USD, Winter WINTER/USD and Spring SPRING/USD — that are designed to rise and fall in relative value to one another. Every nine months, a coin’s production is halved, going from most productive to least. Instead of this leading to an exodus of miners, those miners can now mine any of the other three seasons.
The project has reported evidence that this works, too. On June 5, SPRING production was cut in half. This made it unprofitable to mine, and many miners chose to move to the other tokens that were profitable. This reduced the total power still dedicated to mining SPRING, making it profitable again for those remaining.
And over the course of the next two months, the price of SPRING rose to reflect the reduced rate of production, bringing some miners back to SPRING until an equilibrium was reached.
The project has proposed a novel way to deal with production changes, offering a way for miners to stay within the same ecosystem. This seems, at least so far, to have created a mutually beneficial environment in which there is an opportunity for miners and participants to continue to profit while remaining within the ecosystem.
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Featured photo by Tim Foster on Unsplash