Luxor Technology wants to make Bitcoin mining easier. Therefore, companies have deployed Panopley products (mining pools, hashrate derivatives, data analytics, ASIC brokers) to help large and small Bitcoin miners aid small miners.
Aaron Forster, the company’s business development director, joined in October 2021 and has seen the team grow from about 15 to 85 people over the course of three and a half years.
Forster came to Bitcoin mining after working in the Canadian energy sector for 10 years. This is one reason why we talk about the future of mining in Canada and the US at the consensus on May 14th-15th this year.
Heading towards the event, Forster shared his thoughts with Coindesk about artificial intelligence, increasing the refinement of mining, and the ability of Luxor products to allow miners to hedge various forms of risk.
This interview is condensed and edited for clarity.
Mining pools make miners more likely to combine computational resources and receive rewards from Bitcoin blocks. Can you explain how the mining pool in Luxor works?
Aaron Fourster: Mining Pools are basically an aggregator that reduces the variance of solo mining. Looking at solo mining, it’s very lottery-like. This means you can plug in your machine and hit rewards for blocks tomorrow. But you’re still paying for energy in the meantime. On a small scale, that’s not a big deal. That’s not a big deal as you scale it up and make a business around it.
The most common type of mining pool is PPLN. This means the pay for the last N-Shares. Essentially, that means that miners will not be paid unless the mining pool hits the block. It is also due to the diversification of luck, so it is not different from the situation in that solo miner. But it generates revenue volatility for those large industrial miners.
So we are seeing the emergence of what we call full payper share or FPP. With FPP, you pay the miners revenue based on the number of shares they filed in the pool, whether they find a block or not. Assuming the hashprice remains the same, we give the miners revenue certainty. We have become an effective insurance provider.
The problem is that you need a very deep and strong balance sheet to support that model. Because while we reduce the diversification of miners, that risk lies on us. So you need to plan. However, it can be calculated over a sufficient period of time. We have different partners in that respect, so we do not take full risk of the balance sheet.
Tell us about your ASIC securities company’s business.
We have become one of the major hardware suppliers in the secondary market. It was shipped to over 35 countries, mainly within North America. We deal with everyone from public companies to private companies, institutions, and retail.
We are primarily brokers. That is, they match buyers and sellers primarily in the secondary market. We sometimes interact with ASIC manufacturers and in certain cases we employ major positions. That is, you use money from your balance sheet to buy ASICs and resell them in the secondary market. But a large portion of our volume comes from matching buyers and sellers.
Luxor has also launched its first hashrate futures contract.
We are trying to advance the Bitcoin mining space. We wanted to take a big leap and bring hashrates into the world of Tradfi, depending on how we view our mining pool.
We wanted to create a tool that allows investors to take the position of hashprice without effectively owning mining equipment. Hashprice is the hour or daily income that a miner gets, and it fluctuates greatly. For some, it’s about hedging and for others it’s speculation. We are creating tools for miners to sell hashrates forward and use them as a way to fund basic collateral or growth.
“Let miners basically sell the forward hashrate and receive Bitcoin in advance. And they can take it and do whatever they need, whether it’s buying or expanding the mining work.” It’s basically collateral for the hashrate. Therefore, they are obligated to send an hashrate of XX amounts per month for the length of the contract. Before that, they pay a certain amount of Bitcoin in advance.
There is a market imbalance between buyers and sellers. We have many buyers. This means people and institutions who want to earn returns on Bitcoin. You are lending Bitcoin effectively at your interest rate. However, you can also see that it is buying that hashrate at a discounted price. This is important for institutions and people who don’t want physical exposure to Bitcoin mining, but want to be exposed to hash prices or hash rates. They can do it synthetically by buying Bitcoin, putting it in our market, lending it effectively, earning yields, and buying that hashrate at a discounted price.
What’s the most exciting thing about Bitcoin mining at the moment?
Acceptance and natural advancement in our industry into other markets. AI HPC transitions cannot be ignored. Instead of building these megamines, large buildings with high power density Bitcoin mining operations, we are beginning to see large miners for artificial intelligence transform into power infrastructure providers.
It’s exciting for me as stepping into a bigger, more capital-intensive industry, like AI. I think the biggest example is the core weaving transaction structure of scientific weaving, and how they blended these two businesses together. They are free to each other. And it’s really exciting.
Looking at our own product roadmap, we have no choice but to follow a roadmap similar to that of Bitcoin Miner. Many of the products we have built for the mining industry are similar to what we need at different levels of AI. Take care, it’s much easier in our industry than AI. We were the first step into the HPC space and yet it was a very early stage.
