Cobo Godfish: The Mining Past of an Old Miner

Organizer: Cobo

During the 2024 Hong Kong Web3 Carnival, Cobo, in collaboration with Antalpha Prime, BounceBit, SYS Labs, and Rollux, hosted the offline themed event "BTC Old Friends" on April 7 in Hong Kong, supported by Tether Gold. Bitcoin old miners and BTC Layer 2 newcomers gathered to discuss the glorious years of early Bitcoin mining and look forward to the future of the BTC ecosystem.

During the dinner break, Cobo co-founder and CEO Shen Yu shared interesting insights about early Bitcoin miners, reviewed the various challenges miners faced when going overseas, and shared views on BTC Layer 2 and AI, as well as Cobo's positioning in these areas.

We have organized the content shared by Shen Yu and are sharing it here with Cobo users and partners.

Self-Introduction of Old Miners

Hello everyone, I am Shen Yu, an old miner, veteran investor, NFT collector, and a victim of on-chain inscriptions. Over the past decade, I have witnessed the ups and downs of the industry, from the early days of GPU mining, the birth of ASICs, China's first mining pool, Bitcoin's first halving, Mt. Gox… all the way to the ICO of Ethereum in 2017, which brought smart contracts and new asset issuance methods; in the last cycle, we experienced DeFi Summer and the explosion of NFTs; a year ago, we witnessed a boom in the Bitcoin ecosystem, with many inscriptions emerging from the bottom up, including the recent surge of various Bitcoin Layer 2s and sidechains.

Over the past decade, we have witnessed the entire Crypto industry grow from nothing. It is fortunate that today, in 2024, Bitcoin has reached an early turning point. The launch of the Bitcoin ETF in January 2024 means that Bitcoin has officially debuted as a mature financial asset in front of the public.

Standing in 2024, we can clearly see the infinite possibilities of the future of blockchain. The core issues that have troubled us for a long time in the blockchain industry have basically become clear today. What we are about to welcome is a significant wave of growth for the entire industry, allowing blockchain to truly become widespread, enabling end users to use the convenience and security brought by blockchain technology without feeling it. I believe this can be achieved on a large scale within the next one or two cycles.

Opportunities and Past Stories of Institutionalized and Professional Mining

One interesting aspect of this industry is that it relies on the power of cycles, pushing the growth of the industry through continuous iteration and learning from mistakes. The story of institutionalized mining began in the bear market of late 2014 and 2015. At that time, the price of BTC fell rapidly, and ASICs had already reached a small scale, causing profit margins to plummet dramatically. The initial payback period for Bitcoin mining was 3 months or 6 months, which later extended to a year or even two years. In a rapidly declining bear market where prices remained at the bottom, miners had to optimize electricity costs and needed to corporate and scale their mining operations; otherwise, marginal profits became very low and risk resistance was particularly poor. This market situation forced miners to relocate from initially favorable mining sites.

It may be hard to believe, but my first large-scale mining site was located in the center of Nanjing, just two kilometers from Wanda, with excellent conditions, using IDC central air conditioning. Those mining machines were extremely valuable, and we mined over 20,000 Bitcoins and more than 100,000 Ethereum at that site. However, when the bear market hit, we could no longer mine because the electricity costs were too high. Although the conditions were particularly good, with excellent living conditions and well-decorated mining sites, we had to relocate the mining machines to places with competitive electricity costs.

At that time, these miners traveled from various parts of China, using provincial power grid maps to find places with excess electricity and redundant power resources. They drove along the Dadu River, navigating through landslide-prone areas, inspecting hydropower stations one by one, negotiating, and building mining sites.

During that wave, the entire Crypto world began to see a trend of scaling and centralization of cryptographic computing power. At that time, about 70-80% of the global computing power was concentrated along the Dadu River, with a few power stations in Xinjiang during winter. The electricity consumption was not that high. This scale of development stemmed from the fact that the bear market was too long, forcing everyone to optimize costs and improve efficiency.

Challenges and Barriers Faced by Miners Going Overseas

When it comes to overseas mining, everyone initially had high hopes and wanted to make a big impact. However, upon arriving in the United States, they found numerous pitfalls: from early legal frameworks and tax planning to later mining site operations, repair efficiency, and online rates; finally, there were many unstable factors like electricity costs and the need to shut down during special events, leading to high overall costs and low efficiency. Many miners realized that the U.S. market was not as ideal as they had thought and began to look for other markets, with South America and Africa being the remaining options. South America and Africa present different issues, particularly concerning political stability and safety. Throughout this process, many miners still fondly remembered China's rapid infrastructure development and relatively favorable environment, where there were fewer pitfalls.

Currently, another situation overseas is the resources of new players, especially political resources. Many sovereign wealth funds have begun to enter the mining space, and they are not even concerned about the payback period, which has led to very low profit margins for everyone.

Looking back on this journey, I feel that this wave of miners going overseas has been quite arduous, and there are very few mining sites that have managed to run successfully and stably.

BTC Layer 2 Projects and Cobo's BTC Ecosystem Layout

The recent prosperity of the Bitcoin ecosystem over the past couple of years has seen the emergence of new asset issuance and types from the bottom up. During the development of the Bitcoin ecosystem, the entire Bitcoin mainnet experienced long-term congestion, and ultimately, this demand overflowed. In response to this overflowed demand, people began to explore some sidechains and Layer 2 network solutions. Coupled with the development of EVM modular blockchain technology over the past few years, these technologies have matured, leading to a rapid emergence of projects and entrepreneurial directions attempting to build Layer 2 networks on top of the Bitcoin ecosystem.

In this process, the biggest core difference between Bitcoin and EVM is that Bitcoin's support for smart contracts is relatively limited. To quickly solve this problem in the short term, we can only rely on bridges to map Bitcoin assets onto Layer 2 networks and EVMs in some way. How to address the issues of asset security and relative decentralization of bridges? In the short term, we can only adopt some compromise solutions.

Cobo provides a solution based on MPC, which is similar to multi-signature. This solution allows the project party to hold a shard of the private key, Cobo, as a co-manager, also holds a shard of the private key, and the third shard is backed up by a third-party security company or insurance company designated by the project party. This solution effectively avoids single point of failure risks while enabling multiple entities to collaborate to enhance the overall security of the bridge's funds. In this process, Cobo can only assist in risk control designated by the project party and cannot decide the direction of the funds.

At the same time, we have also seen some new technical solutions, including updates and iterations at the Bitcoin Opcode level and some cross-chain communication solutions. In the long run, I believe this issue will gradually improve and be resolved. Therefore, in this process, we strive to provide a relatively safe and reliable solution in the early stages to ensure that we have some opportunities for trial and error in this ecosystem and can observe its further development.

Cobo's AI Layout

The development of AI has brought significant variables at the individual level. Many of our workflows and information flows can be resolved by AI, alleviating about 40-50% of daily work pressure and greatly improving efficiency. From another perspective, we have been continuously thinking about AI at the company level, especially after the accuracy of AI agents has significantly improved. We are exploring whether it can be integrated with the blockchain industry. Currently, from one perspective, because the native information flow and asset flow of blockchain are publicly transparent on-chain, if AI agents have high accuracy and execution efficiency in the future, they should interact with the blockchain.

We can envision a scenario: for example, two AI bots representing two different individual entities can deploy corresponding smart contracts on-chain, and the two AI bots can interact and trade with each other. We envision a scenario where, after the blockchain resolves performance issues, on-chain costs will significantly decrease, and the final state may involve a large number of AI agents initiating and using direct transactions on-chain, including smart contract technology. Humans may only need to provide simple risk control for these AI agents, setting some rules for them to execute in a certain manner. We expect to see some relatively mature prototypes in the next three to five years.

Based on this vision, Cobo, a company focused on the secure management of wallet private keys and effective risk control, is working hard to unify the underlying layers of our various wallet product lines and the risk control layer, providing a standard API to integrate AI agent capabilities. We hope to see AI technology widely deployed and applied in the blockchain field in the future.

We expect to have a prototype of this product ready in the second half of this year, and we welcome everyone to try it out.