Why Crypto Mining Actually Matters

Ideological arguments over proof-of-work and proof-of-stake miss the larger point: Mining means the production of objective truth, says futurist Dan Jeffries. This post is part of CoinDesk's Mining Week.

AccessTimeIconMar 24, 2022 at 4:17 p.m. UTC
Updated Sep 19, 2023 at 4:04 p.m. UTC
Layer 2
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

Proof-of-work? Proof-of-stake? A hybrid? One of the new algorithms like proof-of-history or Snowball that next-generation coins like Solana and Avalanche bring to the table?

Over the years, we've seen fierce debates in the crypto community over the best mining solution. “It's proof-of-work or death! Satoshi's original computing power race is the one true way.”

“No, you fool, proof-of-stake delivers 1000 times energy efficiency and it's much faster.”

This piece is part of CoinDesk's Mining Week.

“But proof-of-stake is government by plutocracy and that's horrible and must be stopped now!”

Perhaps the strangest thing about these debates is that the folks shouting the loudest often have no idea what they're talking about.

They're not mathematicians or computer science researchers who understand the inner workings of the algorithms and the trade-offs that each one brings. They pick their favorite coin the way they pick their favorite sports team and then hold onto it with fanatical determination. It's safe to say we shouldn't take most of these uninformed opinions all that seriously when it's not much better than saying the Yankees are better than the Red Sox.

Even calling them "mining" solutions is a bit of a misnomer. Bitcoin created a solution that algorithmically mimicked gold mining and we've been calling consensus mechanisms mining ever since. Most of them don't mimic mining, and even mining itself is a poor term for what's happening under the hood.

The impact of decentralized truth machines will change society in countless ways

Bitcoin's mining system mints new coins, secures the network, decides on the order of transactions, processes transactions and more. It's like calling the Visa (V) network "credit cards" when plastic credit cards are only one tiny aspect of what Visa does to move money around the world.

Even worse, what gets lost in these ideological battles is what makes blockchains useful in the first place. Blockchains are not interesting because of proof-of-work or proof-of-stake. That’s just a means to an end. Mining and proof-of-stake and every other innovative new blockchain, with some fancy new mechanism to make chains faster or more scalable, are really just variations on how we get to consensus.

The true genius of blockchains is something simpler and more fundamental.

Back in 2015, The Economist called blockchains “trust machines.” You can trust the results without having to rely on the third party that enforces the rules and holds bad actors to account the way we rely on Visa to fight fraud for us and roll back transactions when someone steals our card. That's a good take, but it's not the whole story. Trust is powerful, but it's not the real power of the blockchains.

The real power of blockchains is truth.

Blockchains are truth machines.

But not just any truth. Blockchains are engines of decentralized truth.

Objective truth and the state of the world

To be clear, we're not talking objective truth here, as in "all men must die." That's a philosophical rabbit hole anyway. We're talking about answering the question, "What's true for this system?"

If we mean Bitcoin, then “what's true for this system” means where is all the money right now? Where was it yesterday? Which wallet owns what? And so on.

Blockchains give us a way for people to answer questions like: What's the state of the world? How do I know? How can I prove it? How can someone else prove it?

Even better, they give us a constantly updating truth instead of a static truth. We know the state of the world right now and where it was a month ago and a year ago. Each new block is a point in time snapshot of where we are and every block before it is a history of where we were. They're a way for us to decide on consensus reality across a distributed system.

Of course, there are lots of ways to agree on objective truth across a distributed environment. Some of them are a lot faster. Create a centralized database managed by a trusted third party and you've got the power to manage state (the set of stored data) across a vast and distributed system by acting as the final arbiter of truth.

That's what Git is in the software universe. Git lets developers all across the world work on the same code and merge it together and resolve disputes if two people check in different versions of the code (i.e. ,upload them to a repository for review). It was created by legendary software developer Linus Torvalds to make working on Linux easier; Torvalds needed a way to get all those distributed developers to agree on which branch of code reigned supreme.

The HIVE mining facility in Boden is a complex maze of stacked machines and wiring. (Sandali Handagama)
The HIVE mining facility in Boden is a complex maze of stacked machines and wiring. (Sandali Handagama)

Democracy is another example. In a nation-state of hundreds of millions of people, it's hard to get everyone to agree, and so we elect representatives to argue about things and hash out all the details of what laws to make and what we do next and why. It's slow, messy and sometimes ugly, but as long as everyone plays by the rules, it works to establish consensus. The representatives debate, a law gets passed, a policy gets changed, and we move forward even if it happens slowly, with a few steps forward and one step back or five steps back and one step forward.

But what if someone doesn't want to play by the rules? What if they want to break the system? They seize power and start tearing apart democratic institutions and rewriting the rules so that they always win. They find the exploits and overthrow that democracy with an insurrection or a military junta, like we just saw in Myanmar and throughout history in places like Japan during World War II.

How do you come to a consensus then?

You don't.

The winner writes the rules and everyone else on the wrong side of those rules suffers.

That's the problem with centralized authority. It's fast, elegant and simple, right up until it isn't. The problem with trusting a third party is that trust is a moving concept: The party can change the rules.

Perhaps you trust a company, like the company that runs your Git instance in the cloud. But what if it starts gating off features that were formerly free? Maybe it suddenly starts charging outrageous fees every time you check in code? What if it starts losing backups and mixing up data?

Is it still trustworthy then?

Or maybe you've got a trust in rule of law and you say you trust the U.S. Department of Justice. But really, which one do you mean? Do you mean the Department of Justice during the Warren Harding administration where the attorney general profited off prohibition and sold pardons to the highest bidder, or do you mean the Department of Justice that aggressively prosecuted the Ku Klux Klan and dramatically reduced violence across the South in the 1870s?

There is no Department of Justice as such; there are only the people running it at the time.

And that's the real problem with centralized consensus. If the people behind it change, you can't really trust it anymore. A once-trusted institution is now broken and the rules are changed on you. If they tell you the new truth is 1+1 = 3, then that's the new truth and there is nothing you can do about it.

Even worse, how do you reach consensus across the entire world, a world filled with dramatically different ideologies, philosophies and objectives? You have everything from autocracies, to communist state-capitalists, to free-wheeling capitalist democracies, to European socialist systems and everything in between. You have the far Left and the far Right. You have people who can't agree on the color of the sky, much less a policy on abortion or guns or vaccines. How do you come to an understanding then?

The real world is fraught with different desires, wants and needs, and it's all clouded by hatred, prejudices, ignorance and stupidity at multiple levels. How do you get that broad spectrum of incompatible ideologies to decide on consensus reality? How do you get two rival companies to agree when they're fighting over the same market? What about two hostile nation-states or nations in a shooting war? How do you make sure nobody rips up the rules and takes over the system for themselves and forces everyone to agree that 1 + 1 = 3?

Before blockchains, the answer was, you can't.

When someone or some group manages to seize power from everyone else and impose their will, everything falls apart. There's no way to stop it. They take over, delete the database, rewrite the rules and everyone plays by those rules and there's no choice. If it's a company, as a consumer you might move on. But if it’s a nation-state, you might find yourself stuck unless you can move to another nation-state and that's no easy task for even the most intrepid among us.

Where blockchains really thrive is in chaos. They're a decentralized truth machine in hostile environments.

They let us agree on a ground truth whether we're friends, or frenemies, or outright enemies. People can hate each other, want to kill each other, not agree on anything and still reach a consensus truth together. We don't have to trust a third party to tell us what the truth is: We can look at the chain and see for ourselves.

We can agree, even when we all disagree.

We've never had that in history before now.

And what that means for the world is something we're only beginning to understand.

The great blockchains of truth

At the present time, we've used these powerful technologies only as a way to create decentralized monetary systems. That's no small feat, but it's only a small fraction of what they can really do for the world.

Over the next 100 years, blockchains will play an increasing role as invisible arbiters of truth across hostile systems.

Even better, we'll be able to build chains of truth that outlast lifetimes and hostile takeovers and regime changes.

When it comes to monetary systems, we'll see the rise of international digital monetary systems, where the consensus rules are defined by a hybrid of people and algorithmic consensus.

Imagine a monetary policy that could easily take into account inflation as its governing algorithms consult oracles and then adjust interest rates and money supply, all without ever needing an old man in a suit to change a policy three months later when it's already too late. Imagine a monetary supply where 50 or 100 countries use it and all have a stake in the rules. If they go to war, they can still count on the money to be good instead of collapsing when their country collapses, as has happened hundreds of times throughout history.

Every country will become a local node in the system and when one of those nodes goes crazy or rogue it won't corrupt the whole system. That means when a local dictator, who thinks he's above the laws of supply and demand, tries to cut interest rates to stop inflation and instead creates runaway inflation, the local people won't lose their life's fortunes because he won't be able to make those changes.

Beyond money, we'll start to see blockchains become the ultimate arbiter of truth in dozens of other systems.

What gets lost in these ideological battles is what makes blockchains useful in the first place.

Take property disputes. We'll see international chains that show who owns what and how that ownership changes hands over time. Everything from who owns what cars and houses to smaller items like bikes and computers and cellphones. At this time, property ledgers are a tangled mess run at the local level of the state, and they cover only big-ticket items like houses because it's too costly and crazy to try to capture anything else.

But in the future, when you buy a bike online it will register you as the owner to a distributed world chain that keeps track of it all. When someone steals that bike and the police pick it up, they'll know who owns that bike and be able to return it to its rightful owner.

Alta Novella, a small hydropower plant belonging to a Northern Italian municipality called Borgo d'Anaunia recently started mining bitcoin. (Sandali Handagama)
Alta Novella, a small hydropower plant belonging to a Northern Italian municipality called Borgo d'Anaunia recently started mining bitcoin. (Sandali Handagama)

Those international property chains will also let people become fractional owners of all kinds of smaller pieces of property. Maybe you'll own a small fraction of a local coffee shop you love, buying its shares right from your phone. Or, you might go in on an apartment building with a few thousand other owners, making small dividends on rents that come in over time. You might own a piece of art with 20 other people, like an NFT (non-fungible token) that conveys actual ownership rights, and when it changes hands you'll automatically get a notification to vote on where that art can be displayed because the new owner requested an update to the rules from the ownership collective.

Those property ledgers will outlive political regimes, too. When the Communists took over China, they ripped up centuries of old property titles, massacred the landlords and made the government the sole owner of all property. Owners found their family's house deed worth less than toilet paper. But regimes don't last forever and a property ledger that survives even when someone rips up the rules would allow recompense when that regime inevitably collapses later on in history. Families from centuries past might find themselves able to claim back land they once owned or get paid compensation after a new, more friendly government returns to power.

We'll see all that because transparent ownership databases almost always lead to secondary markets. The first companies of merchant kings figured out how to distribute risk with shares in the 1600s and 1700s, and it wasn't long after that secondary markets developed where people could buy and sell the shares of those powerful companies.

Today we take it for granted when it comes to buying and selling shares in companies on stock exchanges, despite us having no connection to the owners or inside knowledge of the business. Property chains will open up brand-new secondary markets and take the idea of a stock exchange to an exponential new level.

We'll also bring blockchains to bear on activities like voting. We've already had decades of research into end-to-end auditable voting systems that cryptographically ensure no votes are tampered with or changed. We'll see blockchains become the decentralized audit database for those kinds of systems where every single vote is recorded perfectly and even when people shout about massive fraud, they'll either be able to prove it or not based on a transparent record that nobody can alter.

Blockchains will also play a critical role in evaluating the authenticity of voice and video recordings, as artificial intelligence destroys our ability to trust what we're seeing with deep fakes that are indistinguishable from the real thing. As deep fakes become more and more common, they will make video evidence in court become worthless. The only way out is to have cameras record live streaming, hashed authentications to blockchains as they film. Only the videos that have block stamps will be admissible as evidence and everything else will be suspect.

The impact of decentralized truth machines will change society in countless ways.

And that can't come fast enough.

Because in today's world, truth is breaking down fast.

Bringing Back the Truth

On social media, we're drowning in a sea of voices. In an era where even fringe lunatics can make their voice heard, often by shouting louder than everyone else, it's hard to hear the real signal through the noise.

We live in an era of perpetual information warfare. People prove their beliefs with bizarre, insane "facts" that make no sense to anyone but themselves. Or they don't bother trying to prove anything at all. Instead they just outright deny reality and create their own reality. Today you can tell someone the sky is blue and, if they're your political enemy, they'll tell you it's red and you're a hideous liar for trying to convince them otherwise.

The centralized citadels of truth have broken down. We don't trust institutions, politicians, companies, newspapers, media, authority figures, scientists or world leaders. Everyone is suspect. Everyone seems to be behind a wider conspiracy to defraud us all.

Of course, there are objective truths. You're free to believe gravity doesn't exist, but go jump out of a 100-story window and you'll find you were wrong and gravity has a 100% win record at that height.

The problem is not the truth doesn't exist; it's that we just can't see it anymore. As every third-party trust breaks down, we need a new system we can trust. We need an independent, open, decentralized system that records the truth of the system faithfully and consistently, every single second of every day, an unbreakable chain of truth.

It’s time to stop thinking of mining as just a way to mint glorified Chuck E Cheese coins. Proof-of-work, proof-of-stake and proof-of-history are much, much more. Mining is the way to that unbreakable chain of truth more than anything else. Mining decides on how the system flows and how it’s ordered. It gives us the state of reality that we all agree on.

And in a world where dictators and authoritarians and would-be authoritarians want to have ultimate power to ram their made-up truth and fake reality down our throats, it’s never been more important for us to have a way to establish consensus reality across a system filled with hostile forces. They are how we come to decide on what the truth is together.

The good news is that hope is on the horizon. Over the next 100 years, we won't need to trust an endless stream of charlatans, dictators, information warriors, idiots, fools and reality deniers.

We'll just turn our eyes to the chain and we'll know the real truth once again.

Further reading from CoinDesk’s Mining Week

Cities across the U.S. are grappling with what it means to have cryptocurrency mining operations in their communities. Plattsburgh, N.Y., offers a sobering case study.

Despite favorable business conditions, a country’s political environment can deter international capital.

CoinDesk reporters traveled across Europe, Asia and North America to capture the diversity of cryptocurrency mining facilities.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Dan  Jeffries

Daniel Jeffries is an author, engineer, blogger, podcaster, public speaker and Managing Director of the rapidly growing AI Infrastructure Alliance.

Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.