THE MASTERMINED WHITEPAPER
Introducing the first decentralized marketplace for RWA tokenized bitcoin mining rigs
March 18, 2024 - Version 0.0.1
ABSTRACT
Bitcoin mining, the transaction processing of the bitcoin network, is traditionally a high-stakes game dominated by massive data centers and expensive hardware. It’s an arena where over $20B in infrastructure underpins a system facilitating transactions worth trillions annually. Participants in this open network vie for a share of $10-20B in block rewards and transaction fees each year-a figure that’s only set to rise.
However, this lucrative field is marked by its exclusivity. The hefty upfront costs for high-grade mining rigs and the necessity to host rigs at cheap, abundant energy sources have centralized bitcoin mining into the hands of a few large-scale operators worldwide. This centralization poses a challenge to the ethos of bitcoin, creating high barriers to entry for average individuals or smaller entities who want access to the means of production of bitcoin and a unique cash flowing asset on a micro level we have never seen before.
Moreover, the market for procuring the essential components—mining machines and hosting services—is scattered and opaque. Deals are struck in informal chat groups on whatsapp/telegram or through a labyrinth of distributors, primarily based in China, the heartland of bitcoin mining hardware production. This disarray is compounded by a burgeoning number of marketplaces, from online giants like Amazon and eBay to specialized entities such as Compass Mining, Saz Mining, NiceHash, Go Mining and more, each with its own set of challenges in terms of reliability and transparency.
mastermined is poised to transform this convoluted market landscape with a groundbreaking approach: leveraging the Real World Asset (RWA) tokenization of bitcoin mining machines, facilitated by the robust capabilities of jiritsu.network. This strategic move not only simplifies the process of acquiring and liquidating energized rigs but also ensures that every transaction and ownership detail is transparently recorded on a unified, decentralized ledger.
By tokenizing the ownership and operational control of the ASICs, miners have unequivocal ownership and direct control over their assets and the associated bitcoin output, devoid of any intermediaries. This innovative system unlocks over $20B in asset liquidity, granting global access to a marketplace where individuals can confidently engage in buying and selling operational mining rigs, assured by an environment that is inherently censorship-resistant, permissionless, and neutral.
We envision a future where the global bitcoin mining infrastructure is decentralized and shared among various hosting providers. It’s a vision of a market that swiftly deploys and liquidates increasingly standardized Bitcoin mining resources in a secure, transparent, and spot-priced manner. Within this ecosystem-hardware, applications, financing, insurance, services, digital ownership and more are traded democratically, creating a unified environment accessible to all.
Our white paper will introduce mastermined, a secure, transparent, and decentralized bitcoin mining network that connects those who want to own rigs with those who have energized rigs available for sale. It outlines the history and fundamental of Bitcoin and mining, the troubles bitcoin miners face, the shifting paradigm of web3 software development, how the machines are tokenized and the mechanics of the decentralized marketplace.
1.0 INTRODUCTION
The mastermined marketplace is a secure, transparent, and decentralized bitcoin mining network that connects those who want to own rigs (miners) with those who have tokenized rigs available for sale (hosts). mastermined acts as a "marketplace" hosting platform (marketplace) - providing a unified layer above all hosting providers so as to present miners with a single hosting platform, regardless of which particular provider they may be using. Miners use mastermined because of its transparency, liquidity, and tokenization technology that ensures miners possess clear ownership and direct control over their equipment and the Bitcoin they produce, eliminating the risk of third-party failures.
1.1 BITCOIN HISTORY
The inception of bitcoin can be traced back to the release of a whitepaper by an individual or group known as Satoshi Nakamoto. This seminal document, titled "Bitcoin: A Peer-to-Peer Electronic Cash System", was published on October 31, 2008. It introduced the world to a groundbreaking concept that would become the most significant innovation in accounting and finance since the Vatican's introduction of double-entry bookkeeping in the 11th century.
The whitepaper laid the foundation for what is known today as blockchain technology—a decentralized, distributed ledger that records transactions across multiple computers. This innovation ensures that the recorded transactions are tamper-resistant and transparent, thus eliminating the need for a central authority or intermediary. The blockchain is the underlying technology of bitcoin, enabling it to function as a peer-to-peer network where transactions are processed and verified by network participants.
From this revolutionary concept emerged two key outcomes:
The advent of blockchain and distributed ledger technology: The introduction of blockchain technology has transcended its initial financial applications, spurring a wave of innovation across various sectors. This technology provides a robust, secure framework for conducting transactions, managing records, and ensuring data integrity without centralized oversight. Its implications extend far beyond cryptocurrency, influencing industries like healthcare, supply chain, voting systems, and more, by providing a new paradigm for data sharing, transparency, and security.
The rise of bitcoin as a multifaceted asset: Bitcoin, the first application and proof of concept for this new blockchain technology, has evolved into the most prominent digital asset, serving multiple roles. It operates as a tool for settlement, offering an efficient, borderless means of transferring value. Its deflationary nature and capped supply have also led it to be recognized as a store of value, akin to digital gold. Furthermore, bitcoin facilitates transactions and payments, enabling users to send and receive funds anywhere in the world with minimal fees and no need for intermediary financial institutions.
1.2 MINING
Bitcoin mining is not just about creating new bitcoins. It's the backbone that keeps the bitcoin network secure through a mechanism known as Proof of Work (PoW). This process involves miners solving complex mathematical puzzles to secure transactions on the network. Think of it like the most intense competition where the prize is not just new bitcoins (block rewards) but also transaction fees, which become more significant as the network grows and the block reward decreases over time.
Mining is essentially the transaction processing system of the bitcoin network, similar to how Visa or Mastercard processes transactions, but on a scale and security level that's groundbreaking. These traditional processors get a cut for their services, akin to how miners earn transaction fees. As bitcoin's adoption escalates, these fees could eventually replace block rewards entirely, maintaining the incentive for mining. To mine, you need powerful hardware called ASICs, affordable electricity, and a stable network connection. ASICs are specialized computing devices the size of a toaster oven, built solely for mining, transforming energy into bitcoins, securing the network, and processing global transactions.
As team of serial entrepreneurs, marketers, investors and builders, discovering bitcoin mining was revolutionary: unlike our previous ventures, mining required no employees, no marketing, no customer service – it was a straightforward operation. You invest in these digital "accountants in a box," power them up, and they start generating income. It's a radically different business model where your "product" is instantly valued by the market, and scalability could potentially lead to public offering due to its high margins and low overhead. Once we discovered that we could build a widget for $12k and sell it instantly for $60k+, we were hooked and the race was on-build as many widgets as fast as possible.
2.0 CHALLENGES
As we raced to scale this highly profitable model, we have navigated significant barriers to entry and survivability. Procuring mining equipment is a complex task, mired in a non-transparent supply chain and limited access to trustworthy vendors from a centralized manufacturing market controlled by China. Once proper equipment is secured from legit channels, large capital investment is needed to buy more rigs, that are often collateralized for high interest debt, leading to the bankruptcy of numerous players during the inevitable and cyclical downturn.
Building large data center infrastructure for bitcoin mining requires access to cheap power in countries and states that support and will continue to support bitcoin mining in the future, a regulatory risk that can be an absolute nightmare for miners. And bitcoin mining continues to face scrutiny on it’s usage of energy and impact to the environment.
All of these challenges highlight the significant barriers that exist and in turn, have created a high level of centralization among the large (and growing) public miners.
2.1 EQUIPMENT
To source machines, you have a lot of options and the majority of them lead to dead ends. Amazon.com and ebay.com may have some sparse, legit, overpriced units at the end of the supply chain, but you’ll never know what you get. The manufacturers websites look like they let you order direct, but they just take your information and never contact you. One option is to find a telegram/whatsapp group of miners and start to vet brokers without getting scammed. Or you can find the network of distributors in China who are all cousins/family members of the owners of the ASIC manufacturers and you need to know somebody who knows somebody.
The procurement journey revealed a system rife with inefficiencies – a lack of straightforward purchasing avenues, reliance on informal networks over secure platforms, and a stark absence of transparency. Other hosting platforms have emerged with various offerings to to streamline this process, yet the overall landscape remains fraught with complexities, from securing the right machinery to ensuring trustworthy hosting and affordable electricity, the latter being another realm with no centralized marketplace or standards.
2.2 FINANCING
Financial risks are profound, stemming from the industry's inherent volatility and the designed revenue dilutions due to increasing network participants and the halving event every four years. Companies often find themselves in precarious financial positions, HODLing onto bitcoin with the hope of price appreciation – a strategy that has historically led to downfall during bear markets. The path to reducing these risks and achieving scalability involves colossal capital injection, astute partnerships, and a perpetual cycle of upgrading to state-of-the-art equipment, maintaining a competitive edge in an aggressively evolving sector.
Despite the daunting challenges, the allure of cryptocurrency mining as a lucrative business model remains. It represents a new paradigm of cash-flowing assets, offering unprecedented margins and value multiplication. However, the road to achieving and sustaining such profitability is fraught with complexities that demand not only significant financial acumen and industry insight but also a deep understanding of the technological and social fabric of the cryptocurrency mining world.
2.3 HOSTING
Many solutions have been built over the years for individuals keen on participating in the bitcoin mining gold rush without the heavy lifting of managing physical hardware and data centers. However, the landscape has been a mixed bag, with offerings ranging from genuine services to outright scams.
Scams and centralized failures: The first breed of “cloud mining” services veered towards centralized operations, where customers would invest funds hoping to own a share of the mining hashrate. Unfortunately, this sector became notorious for its lack of transparency, with numerous platforms failing to conduct any real mining. These operators, intentionally or due to mismanagement, often vanished with customer investments, leaving behind a trail of disillusioned participants. This model was fundamentally flawed, with the so-called “hashrate pooling” serving more as a façade for collecting funds rather than a genuine mining endeavor.
Legitimate hosting solutions : Large scale miners can find many hosting partners through various marketplaces and telegram groups. In response to the pitfalls of early cloud mining models, new platforms have developed more transparent solutions to hosting machines through their private marketplaces and hosting contracts. These companies attempt to provide miners with actual ownership of their machines, coupled with a marketplace for hosting services and energized rigs. They represent a shift towards giving customers more control and visibility over their mining operations.
However, even these evolved services come with their limitations. The primary drawback is their operation on private ledgers, which restricts customers' ability to seamlessly transfer their machines to other platforms. This limitation encapsulates the customers within the ecosystem of the service provider, thereby inhibiting true ownership and flexibility in managing their mining assets. A secondary drawback is the speed at which they can deploy and energize machines to meet a growing and shrinking demand pool.
3.0 TOKENIZATION
As discussed mentioned earlier, bitcoin has been the 15 year use case for the power of blockchain and distributed ledger technology and is being touted as one of the most secure assets on the planet. Beyond that, blockchain technologies are also transforming the way organizations and businesses can build, develop, market, launch and incentivize their participants, bringing new digital products to market on public ledger systems that change the way we manage our physical lives.
3.1 WEB3
Similar to the way bitcoin mining changed the game for buying a physical asset with built-in employees and marketing, tokenization changes the game for building a software company with identity access management, developer ecosystems, user generated content marketing and an incentivization network built into a decentralized ledger system represented with tokens.
This new paradigm shift has been termed as web3 and explained as follows: Web 1.0 provided us with a static internet, where single webpages provided information for browsers to consume. Web 2.0 brought the advent of exchange of information, where you could write into the internet with your blog post, social media profile, credit card, and in turn receive goods and services from the tech companies and more in both the physical and digital world.
In the Web 3.0 revolution, cryptographic blockchain technology has allowed web users to now transact VALUE over the internet, not just information. Bits of data that are worth something in a marketplace. This incredible technology now allows users to own and control the physical and digital pieces of this new internet with they keys.
The first shift we've seen in the power of web3 software is the move of identify access management from an internal team that software companies would hire to manage the database of user identities (sometimes leading to hundreds millions in legal fees and fines when done incorrectly). Using cryptographic keys, user self-authenticate and maintain control of their keys and identify, removing a huge security, investment and infrastructure barrier for new software companies.
The next shift is the use of tokens as both the activation mechanism and incentive mechanism for joining this new software network and participating in the value from numerous points. Imagine that these new software platforms are just like the old desktop software CD you used to get to put on your computer. Once the software was downloaded from the CD to the hard drive, you could build and design any program you want on the platform and these early adopters eventually launched a trillion dollars of value across the web 1.0 and web 2.0 eras. BUT, in order to get access to the software on that magical CD, you need the KEY: a random string of 24 letters and numbers that acted as your "receipt" confirmed that you had indeed purchased the right to use this software.
Once you have access to the software, you can build anything you want on it, but you have to use the native token from your receipts in order for the software to work. What the central token does is connect together all of the other pieces of the organization into a decentralized autonomous organizations (DAOs) that is incentivized to build software (developers), then market this software (marketers), then onboard users and start to improve their experience.
All of these activities in the ecosystem of the token causes the increase in usage of the token and therefore the increase in purchase of the token drives up the price based on the supply and demand of the token available. Nodes/miners work to process transactions (typically now as a Proof of Stake network as there robustness of Proof of Work is not necessary for storing value in the inherent software platform) and are rewarded in the token to manage the supply and inflationary metrics as the platform grows.
This does sounds very “line goes up” and “greater fools theory” but the reality is that this is a much more transparent and filtered down view of this software platform’s (and it’s developer ecosystem’s) financial performance. Unlike public companies that have a very opaque process on how it’s earnings are filtered down from it’s revenue through the company, all of these transactions are visible on a public ledger. And public companies are not immune to “line goes up” and “greater fools theory” as we have seen numerous examples of the fundamentals of the business being disassociated with the valuation.
While still very early, experimental and not perfect, we have seen incredible investment pour into new software platforms such as Ethereum, Cardano, Avalanche and more. Bitcoin and Ethereum have become $1.3T and $400B software companies, landing up there with some of the biggest names in the web2.0 tech world.
But the question has always been, who are the customers, what are they buying in this software ecosystem that matters and how has this actually solved anything that creates value? Games where you get to own your cartoon monkey or punk and benefit from its IP sound good in theory, but anyone with common business sense can see that these are limited applications and the killer applications are waiting to be discovered.
3.2 RWA TOKENIZATION
mastermined has entered into a preliminary partnership agreement with a leading Real World Asset Tokenization platform (Jiritsu) to bring tokenized bitcoin mining machines to market and establish the industry standard on the mastermined marketplace. The Jiritsu Network, integrated within the avalanche ecosystem as a Layer 1 blockchain, focuses on the security and transparency of owning a bitcoin mining machine on chain through integrity and verification of off-chain data.
The core of Jiritsu Network’s innovation is the ZK MPC Cloud, a revolutionary technology that has processed over 6 million proofs, demonstrating its reliability and effectiveness in the financial tech industry. Tokenizing bitcoin miners allows Jiritsu to verify rigs in custody with vetted hosts on the platform, ensuring asset integrity and security and giving miners unequivocal ownership and direct control over their assets and the associated Bitcoin output, devoid of any intermediaries.
4.0 MARKETPLACE
ASIC procurement (the process through which miners purchase rigs from hosts) on mastermined is implemented through a decentralized exchange (marketplace).
The marketplace consists of a public order book and a matching algorithm. Miners place deployment orders, which contains a specification to the miner’s needs, and hosts place fulfillment orders to bid on deployment orders. Deployment orders include the maximum a miner is willing to pay for an energized miner based on the attributes (rig model, age, energized history, location, hosting contract, energy cost, performance) and current market pricing; fulfillment orders declare the price that hosts will provide the rigs for.
Deployment orders are open for a miner-defined length of time, as measure to the second. While the deployment order is open, providers may post fulfillment orders to bid on it.
A fulfillment order is eligible to match with a deployment order if the fulfillment order satisfies all minimum specifications of the deployment order. Given a deployment order and a set of eligible fulfillment orders, the fulfillment order offering the lowest price will be matched with the deployment order. If multiple fulfillment orders are eligible for a match and offer the same price, the fulfillment order place first will be matched with the deployment order.
Business and individual consumers will want and need to protect how they are publicly displaying their ownership of bitcoin miners. To guard against privacy data mining and other attack vectors, a homomorphic encryption layer is added.
A purchase is verified on the blockchain when a match occurs between a deployment and fulfillment order. The transaction contains references to the deployment and fulfillment orders. Transactions are the binding agent in fulfilling a deployment.