Most of the cryptocurrencies we know and love run on blockchain technology, meaning that they need a miner to validate each block/transaction before it can get added to the blockchain. This is how Bitcoin, Litecoin, Monero, Ethereum, and the majority of other coins work. This system gave birth to a whole new career option: becoming a blockchain miner.
Mining involves running a computer designed specifically for solving cryptographic puzzles in an attempt to add blocks to the blockchain. Miners are financially rewarded for doing so. Cryptocurrencies that run on a blockchain require many miners to facilitate transactions and keep the ecosystem flowing. The necessity of miners means that they, as a community, have gained a voice in the crypto landscape. By joining mining pools, they can become powerful pressure groups, advocating for change where they see fit. To understand just how much influence mining communities have, you need to recognize that they were instrumental in creating the Bitcoin Cash hard fork and subsequently raising it to the 4th most valued cryptocurrency in the world.
The strength of mining communities was considered by Satoshi himself. He argued that if a mining pool was to facilitate over 51% of all transactions then they could cause severe damage to the blockchain and technically make the coin semi-centralised. But, of course, there was nothing that could be done about miners, they were, and are, an essential part of blockchain technology.
Then, the concept of replacing miners with ‘stakers’ (or validators) developed. Coins like Lisk and Stratis don’t use miners because their blockchains revolve around validation through ‘proof of stake.’ This is an alternative to mining. Instead of solving cryptographic puzzles, you simply purchase a significant amount of the cryptocurrency in question and use it as a means of granting you access to validate blocks before they reach the blockchain (of course, this is a hugely simplified explanation).
While there are no miners used in this process, many miners diversify and stake/validate for some coins too. As validators are just as important as miners, they too developed their own community too, similar to the mining community. Staking pools exist, and they also wield the same amount of influence as miners. Developers need to keep them satisfied so that their cryptocurrency does not collapse.
Recently, the market has seen a powerful wave of new coins that do not use miners or stakers. These are known as DaG (Directed Acyclic Graph) coins. In an extremely simplified form, they work by allowing each previous transaction to validate the next transaction. No external help is needed. This is a revolutionary system as it allows for unbelievably fast transactions and incredibly cheap (or sometimes free) transaction fees. DaG coins do not use a blockchain, but rather a blockchain alternative, such as Nano’s Block Lattice or IOTA’s Tangle. They are systems inspired by the blockchain but have substantial conceptual differences.
DaG coins are gaining a considerable amount of prominence in the market, but they are also seen as a threat to mining communities. Nano is in direct competition with Bitcoin. If, for instance, it was to overtake Bitcoin regarding demand, price, and popularity, most miners would be out of their job as it would no longer be lucrative to facilitate transactions.
It is understandable that the mining world would be fearful. We are in a situation where DaG coins are not mainstream, but that could change soon. Miners don’t want this to happen. If it does, they lose their income, so there is a high possibility that the community is holding back the price of these coins. This is not to say that they are engaging in market manipulation, but rather they are spreading FUD (fear, uncertainty, and doubt) about these coins, telling the public that coins with instant and near free transactions are nothing more than a pipe dream, impossibility, or scam. They are trying to suppress them, and while this may work for a while, there will soon be a time when DaG coins eventually reach the mainstream. All it would take is for one minerless coin to enter the top 5 on CoinMarketCap for the public to become conscious of them.
And let’s not forget just how large the mining community is. Not only does it include individual miners and mining pools, but it includes manufacturers like Bitmain. This is a massive organization with an immense amount of influence. They can very quickly influence the conversation of cryptocurrency whenever they see fit.
What does this mean for investors?
Investors need to be extremely cautious of the information they read, as it will be tough to find impartial documentation. Articles published by mining pools or communities may criticise DaG coins such as Nano unfairly (that is not to say there aren’t some flaws with DaG technology as a whole). Investors also need to understand that DaG coins are long-term holds – they are nowhere near reaching the mainstream, so their growth is stunted. Coins like IOTA, which focuses on IoT, won’t even have a fully working and accessible product for many years. They are coins which will shape the future considerably more than they shape the present.
Why not join the debate in our lively Telegram community?
Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.