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Token Daily Newsletter #23

RandomX Thoughts

Last weekend, the Monero network executed its scheduled hard fork to the new mining algorithm: RandomX. The hard fork is part of Monero’s continuous efforts to expel specialized hardware from mining on Monero. The frequent forking strategy is not new and initially began in response to Bitmain introducing an ASIC miner for XMR early 2018. Back then, the Monero devs and community decided to change the mining algorithm to brick new ASIC miners. Since then, the strategy has been to fork the network regularly (aiming for about twice every year) in order to perform protocol improvements and render new ASIC chips obsolete on the Monero network.


In this context, the RandomX fork may first appear to be a regularly scheduled fork. However, in reality, RandomX is different than the previous forks. While previous Monero hard forks mainly targeted the expulsion of ASICs, the RandomX hard fork also expels GPUs from mining in the network.


What is RandomX and Why It Would Affect GPU Mining?

RandomX is a mining algorithm that depends on the execution of random pieces of software code (up to 2^512 unique combinations). These pieces of code mix integer operations, floating-point operations and conditional statements (branches). For this reason, there is no specific execution path and hence no significant benefit from using hardware that excels in executing largely parallel and identical operations like GPUs. This means RandomX mining is better performed using a general-purpose CPU. For example, the benchmark testing done by the RandomX developers shows a performance improvement of 8x-10x for general purposes CPUs between the previous CryptoNight Varient 4 (CN/R)  algorithm and RandomX. At the same time, GPU performance either gets a tiny boost or degrades after the mining algorithm change. 


Given that it was normal for GPU miners to leave the Monero network. After the hard fork, the network hashrate jumped from 300 MH/s (using CN/R) to about 750 MH/s (Using RandomX). This 2X increase in hashrate doesn’t match the 8-10X improvement in CPU performance indicating most GPU miners (probably ~ 75% of the old network hash rate) has left the network and only a small fraction (probably around 25%) who were doing CPU mining who held their ground benefitted from the performance boost pushing the total hashrate up by 2X.


What Goals Has RandomX achieved?

Potentially, RandomX has succeeded in giving more power to CPU miners. In the process, GPU miners have been pushed out. Whether this is a net good or net bad outcome is debatable. RandomX proponents argue that it achieves better decentralization and is more aligned with Satoshi’s original vision for Bitcoin (1 CPU = 1 vote). The flip side here is that CPU mining may not be economically scalable as it targets hobbyists and ideological supporters. Dedicated miners (GPU miners) who used to mine on the network for economic benefits have no incentive to keep securing the network, and hence the current network may be less secure if someone can somehow create dedicated hardware that beats CPU performance.

Another area that RandomX cannot improve on is mining pool centralization, which to be fair, isn’t the main goal of the upgrade. After the hard fork, the distribution of the hashrate was essentially the same as before, with the two leading mining pools representing more than 2/3 of the total network hash rate. CPU mining may actually worsen mining pool centralization as it removes any possibility for independent mining which was potentially possible via big GPU miners.




Is RandomX Safe for the Long Term?

RandomX is a tough mining algorithm to use for GPUs because GPUs are rigid and designed for a specific type of computational load. However, anyone with a decent background in hardware design knows the same constraint doesn’t necessarily apply for FPGAs. FPGAs are reconfigurable hardware that allows the design of FPGA miners to, in almost all cases, outperform GPUs. As FPGAs are reconfigurable, it is fundamentally possible to create the basic computational blocks required by RandomX and activate the required blocks when needed by the random execution script.

The question then becomes whether a RandomX FPGA miner is economical enough to pursue. My guess is that it is possible. In any case, it won’t be long until we have a definitive answer to this question with the growing influence of FPGA mining companies like Monad, Bittware, and others.




⚡️ Lightning Network Support On Top-Tier Exchanges

Bitfinex now supports Bitcoin deposits and withdrawals using LN. To make it even more secure for users to use LN, Bitfinex is spinning their LN nodes. 

This significantly improves security. LN instant and cheap BTC transfers make it possible to move funds to the exchange only when a trade execution is required. This significantly limits exchange centralization risks. 


⚡️A Look At Innovation In Bitcoin’s Technology Stack

Over the past 11 years, we have seen remarkable improvements on top of Bitcoin, increasing the quality and reliability of the protocol. What makes Bitcoin unique, though, is that the core set of consensus rules Bitcoin possesses remains the same, making it very attractive to ordinary developers and institutional investors alike. However, in our VC-fueled, turbo-growth-at-all-costs market, incremental progress can sometimes be mistaken for no progress.

Lucas Nuzzi recently published this article to debunk the claim that bitcoin hasn't been innovated upon by charting the different areas of bitcoin innovations: Layer 2, Performance & Usability, Smart Contracts, Sidechains, Mining, and Privacy. This article serves as a great reminder that Bitcoin isn’t a static technology and equips the reader with a handful of innovations to educate folks who classify Bitcoin as a failed, static project.

⚡️PayPal CEO publicly admits he owns bitcoin, and only bitcoin

In a recent interview with Fortune, PayPal CEO Dan Schulman mentions that he only owns Bitcoin. PayPal was the first company to leave the Libra organization, and he dives into why the company made that decision. Dan also confirms that PayPal has internal teams working on blockchain and cryptocurrency projects, voicing his love for the technology and the many possibilities it offers.



🔹  Istanbul: Today

The Ethereum network hard fork code-named Istanbul is around the corner. The hard fork is scheduled to occur on December 7 at block height 9,069,000. One of the main goals is to upgrade some Ethereum functionalities that will improve the performance of L2 solutions, specifically these using zk-SNARKs and STARKs.

🔹  DeFi UI Platforms are Turning Heads

As the DeFi movement keeps growing, the interest in user-friendly tools to track and invest in DeFi products is skyrocketing. Zerion, one of the leading tools in this regard, has recently announced a $2M raise to continue building and improving the product. Additionally, our search for tools that can track your holdings in different DeFi products has recently lead us to discover 



Binance Plan to Kill Tezos (and Probably All PoS) Validators

Binance's announcement to support Tezos validation at 0% fees could spell out doom for many Staking-as-a-Service (StaaS) providers. While many will mistaken 0% fees as the killer deal, it probably isn't. The deadly blow to competitors is the liquidity and freedom to exchange XTZ at any time during staking/baking that is offered by Binance (and cannot be offered by other STaaS providers).

The move, of course, has significant concerns and risks. PoS security and economics depend significantly on the illiquidity of the staked assets. Hence, the move can be a threat to the PoS security model.

🚨 Apply to a16z crypto school 

...where Token Daily Capital GP Soona Amhaz is a mentor. She'll also be reviewing your applications - we hope to see our TD readers there!


Disclosure: Token Daily Capital and/or its partners may have exposure to some of the cryptocurrencies mentioned in this newsletter.

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