Note: Parts of this introduction are from the BTCST whitepaper. To view the complete whitepaper, visit https://www.1-b.tc/static/BTCST_Whitepaper.pdf
A significant impediment to participation in Bitcoin mining is the limited number of exit options. Bitcoin Standard Hashrate Token (“BTCST”) solves this problem by bringing exchange-grade liquidity to Bitcoin mining. Each BTCST is collateralized by 0.1 terahash per second (“TH/s”) of Bitcoin mining power. By staking BTCSTs, holders of the tokens will receive daily Bitcoin distributions that correspond to the mining power staked. And because the market price of BTCST is determinable as the discounted cashflow of the underlying mining power, BTCST in secondary trading will perform as a leveraged Bitcoin token free from liquidation risk. BTCST will create an efficient market for Bitcoin’s mining power in ways similar to how Grayscale Bitcoin Trust creates institutional liquidity for Bitcoin.
Bitcoin mining is a profitable venture with limited liquidity. Most miners must
choose between holding onto equipment for years or relying on brokers for infrequent sales. This lack of liquidity means Bitcoin miners have few ways to hedge against or profit from the price fluctuation of mining machines. The same issues also discourage newcomers from seriously participating in Bitcoin mining. Finally, while traders often have the interest to gain Bitcoin mining exposure for having these exposures can be viewed as Bitcoin long options, high transaction costs dissuade these traders.
There is a ripe opportunity for a new market.
Cloud mining is an imperfect solution. While cloud mining lowers the barrier of entry to mining, lack of standardization and strong product coupling make markets hard to form around mining contracts.
We propose to solve this problem through Bitcoin Standard Hashrate Token
(“BTCST”), a token collateralized by standardized Bitcoin mining power. By
standardizing and tokenizing mining power into BTCST and listing the token for exchange trading, we can bring exchange-grade liquidity to the mining power market while meeting traders’ need for mining exposure.
Exchange trading of Bitcoin mining power
Each BTCST is a token collateralized by a standardized unit of actual Bitcoin mining power. Holding the token is legally and functionally equivalent to owning the underlying mining power; staking the token on-chain will entitle the staking holder to receive mining rewards in Bitcoin; and listing of BTCST on major exchanges will bring meaningful liquidity to tokenized Bitcoin mining power.
BTCST creates an efficient market among Bitcoin miners and those interested in becoming one. By trading BTCST, market participants can freely enter and exit Bitcoin mining exposure in any size, at any time, and with low costs. Even miners without mining power tokenized by BTCST can make use of the token to capture the profits in or hedge against the risks of mining machine price fluctuation.
BTCST also connects miners with traders in general. Because the market price of BTCST will perform as a leveraged Bitcoin token, BTCST will meet a variety of trading needs of proprietary and algorithmic traders in ways that are previously unattainable.
Issuance — freely participle Bitcoin mining power standardization and tokenization
BTCST will, and can only be issued when actual Bitcoin mining power has been contributed to or acquired by the project. Under the contribution program, a miner decides to contribute eligible mining power to the project in exchange for newly issued BTCSTs. Because BTCST issuance is freely participle, any miner may contribute mining power to apply for standardization and tokenization as long as the miner can demonstrate that (i) the contributed mining power is owned free and clear, (ii) equipment generating the mining power is hosted in sites that have passed the program team’s risk assessment, and (iii) no fewer than 5 PH/s of mining power are contributed.
Under the acquisition program, the project acquires eligible Bitcoin mining power in the open market with raised capital or retained earnings. BTCSTs issued under the acquisition program will be owned by the project itself. Under either the contribution or the acquisition program, the number of units of TH/s that the contributed or acquired Bitcoin mining power can be standardized into will be at least equal to the number of newly issued BTCSTs.
The standardization target of BTCST is 60 W/TH upon launch. Specifically, when eligible units of mining power are either contributed or acquired, they will be placed in a staging pool awaiting standardization. If the effective efficiency of all staged mining power is not 60 W/TH, the project will seek additional mining power with suitable efficiency to be either contributed or acquired so that the effective efficiency of the resultant blend of all staged mining power will reach target.
For example, if the staging pool has a total of 10 PH/s mining power with an off-target effective efficiency of 75 W/TH, the project may choose to procure another 10 PH/s mining power with an effective efficiency of 45 W/TH to bring the overall effective efficiency of the staging pool to target.
When blending succeeds for a staging pool, the project will, with the consent of owners of staged mining power, move all staged units of mining power to the project’s tokenization pool and issue one BTCST for each 0.1 standardized unit of TH/s added to the tokenization pool. When blending fails, there will be no ownership transfer of the staged mining power and no token issuance.
By operation of token design, the total circulation of BTCST must at least generate the amount of mining power that all circulating tokens collectively represent. For example, if the blockchain shows 10,000 BTCSTs in circulation, the project must generate at least 1000 TH/s in Bitcoin mining power. As discussed below, a mining pool will partner with the project as an independent auditor and periodically publish reports to demonstrate mining reward sufficiency and to prove that BTCST is fully or over collateralized by mining power.