Speaking to Atlas21, Alejandro De La Torre, CEO and co-founder of Demand Pool, discussed the Stratum V2 protocol, the critical issues of mining pools, and home mining.
In recent years, some elements of centralization have emerged in the bitcoin mining landscape. In particular, the creation of the block template and the management of payments to miners currently represent the two critical points of the ecosystem: the Stratum V2 protocol and other improvements aim to solve them.
To talk about this and more, Atlas21 turned to the CEO and co-founder of Demand (DMND) Pool, Alejandro De La Torre.
What motivated you to found DMND Pool?
“Two main reasons. The first is that, having worked in the past in other large mining pools like BTC.com and Poolin, I witnessed the phenomenon of mining centralization. The creation of block templates is controlled by the pool operator. Additionally, only a company with significant liquidity and a profitable secondary business can offer the FPPS (Full Pay Per Share) payment system, effectively closing the door to new operators.”
The main difference between FPPS (Full Pay Per Share) and PPLNS (Pay Per Last N Shares) concerns how miners are paid. With FPPS, the pool estimates block rewards and transaction fees and pays miners based on the shares they submit, regardless of whether the pool actually finds a block. This system requires the pool to have large financial reserves to cover payments even during periods of bad luck. Instead, with PPLNS, miners are paid only when the pool successfully finds a block, and the reward is distributed based on the number of valid shares submitted by miners during a recent time window.
“I was looking for a solution and found Stratum V2. I therefore started collaborating with the Stratum V2 open source team and then decided to found a company with the main developer of the SRI (Stratum Reference Implementation), Filippo Merli.
In addition, I realized that, with Stratum V2 and the return to the PPLNS payment method, along with other improvements in the pool structure, it is possible to achieve greater profits for miners. So there is also a business case, because decentralization is great, but it’s still a business that needs to generate money and miners need to earn more.”
What is the problem with the current FPPS payment system?
“FPPS does not allow new operators to enter the mining pool industry, because it would require a large amount of liquidity to pay miners for every share even when you don’t mine a block, causing many smaller pools to transform into proxies for large operators. This is very expensive, especially because the global hashrate has grown considerably.
Currently, only two large pools offer this payment method. The rest of the pools are essentially proxies for these two large pools. There are perhaps one or two other pools that are not part of this structure, but those two large pools control more than 50% of the hashrate.
If you add that Stratum V1 only allows pool operators to build block templates, you end up with five or six entities building blocks across the entire Bitcoin ecosystem.”
How does Slice, your PPLNS-based payment system, work?
“Slice is our solution to a big challenge: how to account for the different block templates and fee structures of each of our miners who create their own blocks. We wanted to create a fair and transparent system.
It works like PPLNS on the block subsidy part, which remains unchanged. What differs is the fee part. We call it Slice because it divides the work into small ‘slices’ representing packets of shares submitted in a specific period. We compare and evaluate different work templates for the financial value they represent. The block subsidy is distributed proportionally to the hashrate. Transaction fees, however, are distributed not only based on hashrate but also considering the potential value of fees associated with the block or set of transactions the miner was contributing to at that moment.
An important aspect to clarify is that we don’t penalize miners for downtime or for demand response systems in their mining operations, which was the case with other PPLNS-type systems like SCORE, which penalized miners if they disconnected. Shares are rewarded based on the quality and quantity of the miner’s work.
With Slice, we pay 100% of the shares, regardless of whether the miner disconnects or not. Furthermore, the system is completely transparent: you can verify and see that you were paid exactly what you were supposed to be paid.”
With PPLNS, can it be stated that Stratum V2 increases miners’ profits?
“Yes, it can be stated. Because it accounts for all transaction fee spikes, allowing miners to actually pocket these fees instead of the pool operator.
It also enables other features, such as our transaction accelerator, which will help bring more fees to miners in our pool. This is only possible through PPLNS because it pays exactly the amount of bitcoin plus transaction fees directly to miners, not to the pool operator who might use unclear formulas. With PPLNS, you get 100% of what you should earn.”
Tether has announced that it will direct its hashrate to the Ocean mining pool. What do you think about this? And what is the difference between Stratum V2 and Datum?
“I find it to be great news for both Tether and Ocean, and I congratulate them. Regarding Datum and Stratum V2, we at DMND are supporters of any solution that can solve the centralization problem. So Ocean and Datum are very positive for us, and we respect them very much.
The main difference between Stratum V2 and Datum is that Stratum V2 is at a more advanced state. It has almost three and a half years of development by an open-source team and has been extensively tested. It’s more robust and offers several features such as greater efficiency and security.
Datum is built on Stratum V1, so it maintains some inefficiencies. It only deals with building the block template, which is great, but I believe Stratum V2 is a more advanced technology, well-documented and specified. The last time I checked, Datum had no online specifications or documentation. I’m sure they will release them, but for now, Stratum V2 is the most documented and advanced. Additionally, the Stratum Reference Implementation (SRI) open-source team is continuously updating the protocol, with a team of 10-15 developers working on it.”
What do you say to those who argue that Bitcoin’s economic structure will make mining unsustainable with the continued decrease in block rewards?
“Personally, I believe in Bitcoin and think that the expenditure for network security will continue to transform, with more and more fees contributing to miners’ security budget.
I don’t know what will happen in the future, nobody does, but I am very confident and optimistic that fees will continue to increase, helping to support miners. I have structured the entire company around this concept, so I have no choice but to believe in it.”
After the initial zero-fee period, what will be the fee for miners joining DMND? Will you also offer payments via Lightning Network?
“It will be a competitive fee, just like any other pool. In the future, we will also integrate payments via the Lightning Network.”
Are there ongoing collaborations with ASIC manufacturers to optimize performance with Stratum V2?
“I believe this is another potential advantage we have over Datum: we collaborate with the SRI open-source team and hope in the future to pressure manufacturers to make machines compatible with Stratum V2.
I think that ultimately manufacturers will respond if there is widespread use of Stratum V2 in the ecosystem. Most manufacturers I’ve spoken with, and with whom the SRI team has spoken, have seemed very positive. They think it’s a good thing and a plus for the industry. But in the end, it’s a business that requires business decisions, and these will come from the use of Stratum V2 in the ecosystem and from miners themselves pushing for Stratum V2.”
What is your opinion on the home mining trend?
“I love it. I’m a big fan. I have four Bitaxe in my office. Previously, we also created a pool for solo mining, which is still active.
Recently, we have been focusing on pool mining, but we will soon release more information about our dedicated solo mining pool, which will allow anyone to easily manage their own Stratum V2 pool. Our solo mining pool is completely dedicated to the community: it won’t make us money, it’s totally designed to help solo miners because we are big supporters and believe it’s an important part of the ecosystem.”
