[00:02:13] Work. As we should work, but also it’s the thing that separates us from the plethora of coins out there. Right. But interestingly, I’m going to try and knock off on too many tangents here, but Bitcoin was fairly centralized at the beginning, and it became more decentralized as time went on. And it’s been trending generally in the right direction.

[00:02:30] But there are many aspects to Bitcoin. Some aspects became much more centralized and some became much more decentralized and we need to tackle those when they happen because people like centralization because it’s really efficient and it’s really cheap, right? There’s always an inherent cost to decentralization because you have to do a lot more work yourself.

[00:02:48] There’s some time you have to spend learning how to tie your own shoelaces, so to speak. That’s just how it is. So one part of the ecosystem in Bitcoin that became really centralized is block template construction. Yeah. Okay. Now, if you go, I have no idea what that is. It’s simply whoever creates a block template is someone that’s deciding what goes in the blockchain.

[00:03:08] Now that’s a very, very, very important role. It’s part of mining, but all of the Bitcoin miners around the world, pretty much all of them have nothing to do with block template construction for years now. So that’s something that’s needed to be fixed. If you look at the pie chart that you’ll see on Mempool Space, you’ll see that around 30 percent of the blocks are created by Foundry, then another 28 percent or so by Antpool, then a bunch of smaller pools, but a lot of them are really just sort of Window dressing for and pull that’s been established in a bunch of research.

[00:03:39] And what does all that mean? It really just means one thing it means there’s about around four or five entities in the world that are deciding what goes in the blockchain That’s centralized and whether or not the ramifications of that have reared their ugly head yet is kind of irrelevant We don’t really want to wait for that to become the problem that it could be Before we fix it because if it starts becoming a problem and then we try to fix it We’re gonna meet a lot more resistance Then if we take a prophylactic attitude and say, let’s try and fix this thing before it becomes a problem, before people start exploiting it and benefiting from Bitcoin centralization, let’s nip it in the bud.

[00:04:14] Let’s make it so that miners decide themselves what goes in the blockchain again, because mining is actually quite decentralized, the hashing part of it. So you need to expand the role of what miners do to also deciding what goes in the blockchain and diminish the role of what pools do. Pools should just be a way for miners to solve cash flow and get consistent income.

[00:04:33] They shouldn’t be the ones deciding what goes in the blockchain because you can only really have a few pools. You can’t have thousands of pools because then there is no pool, it’s just everyone is solo mining again. So that is the raison d’etre for Ocean. That is why we do what we do. We need to decentralize what it is that ends up in the blockchain or the decisions to that effect.

[00:04:52] Preston Pysh: Real fast for the listener, imagine there being, and I’m going to use really generic numbers here to make it really simple. Let’s say there’s a thousand transactions that are wanting to get into the next block, but there’s only enough space for a hundred. There has to be someone or something that says they’re out of this thousand transactions.

[00:05:08] These are the hundred that are going to be included in the next block. They’re often the ones that are paying the highest fee to get into the next block. But if you only have three to five people that are making this decision as to what the next hundred transactions are, that becomes a concern. And everybody knows there’s all these mining rigs in the world, and some are being operated by an individual person.

[00:05:29] Some are being operated by large companies and publicly traded businesses. But when you think about it, if I’m running my own rig and I find the block. You would think that I would have the capacity or the prerogative or what’s the word I’m looking for, the rights to basically say, no, these are the hundred transactions that I’m going to include out of these thousand in this block that my rig just found.

[00:05:51] That’s not how it works today. Thanks to Ocean, who has highlighted this importance of a block template, which is the hundred that we’re selecting that would go into the next block. This is all starting to change. And so. That’s that first conversation that Mechanic and I had gets into a lot of detail and a lot of background on this.

[00:06:09] Jason, I’m curious if you have any additional comments on this that you think are noteworthy before we kind of really dig into your protocol that you wrote.

[00:06:17] Jason Hughes: Yeah, I mean, Mechanic pretty much summed up the issue pretty well, and I’m sure you guys went into the detail on your other episode that I admittedly had not seen, but but yeah, if you go back to the beginning of where things started, mining was completely decentralized.

[00:06:30] You had the people mining were running nodes and making blocks directly off of their own nodes, and there were no pools. So that was as decentralized as it could get. And then we kind of moved towards pools. So our arc of centralization has kind of gone up and is hopefully at its peak now with ocean going to bring it back down.

[00:06:47] Preston Pysh: Love it.

[00:06:48] Bitcoin Mechanic: I’ll add to that as well. Everyone was CPU mining and everyone has a CPU. Then as we moved into ASIC territory, which is making computers specific to Bitcoin mining, we had some centralization around that as well, because, you know, semiconductor manufacturing is basically two companies or two locations in the world that really do it. Right.

[00:07:07] Preston Pysh: Okay, let’s talk about Stratum and let’s start with Stratum v1. What is this? Because people hear this terminology and they’ve probably heard Stratum v2 more than Stratum v1, but talk to us about what v1 is and Then let’s get into the conversation of v2, but start us off What is this and why does a person even need to know what it is?

[00:07:27] Jason Hughes: I guess I’ll take that. So there has to be a way for the hardware that’s actually doing the hashing to know what it should hash. So in the beginning we had built into the Bitcoin node itself was a mechanism called get work. And it would give the miner a block header to hash and all it could spin were the last 32 bits was the nonce.

[00:07:49] So that gives it about 4 billion hashes before it has to request more work from the node. That was not super scalable because as ASICs were able to do that amount of work in milliseconds and even FBGAs and GPUs, that wasn’t super scalable. Back when I ran Allegius, when we were still doing get work, before Stratum V1 really took off, I mean, that tool was handling tens of thousands, if not a hundred thousand requests per second for work.

[00:08:14] It was getting out of hand. So what Stratum V1 did was a way to expand on get work and let the miner itself, the hardware and the software that runs on that hardware, figure out more work for it to do that was useful for the pool. And so instead of just being able to spin the nonce part of the header, it was also able to construct the Coinbase transaction, the generation transaction, and modify the Coinbase portion of it to add additional entropy.

[00:08:41] And so that was what Stratum V1 was designed to do was just to make it so that the miner didn’t have to contact the pool as often. So now we’re sending work every 30 seconds or so to the miner, and they’re able to work on that until the pool says otherwise. And that was a bit of a change versus these many, many requests per second that were needed from each miner.

[00:09:02] So that it was just a way to make that process more efficient. But it was, it’s still completely centralized on whoever’s generating the work at the pool side.

[00:09:12] Preston Pysh: Got it. So then V2 comes out and my understanding was that this was a fix to some type of encryption or to make that process more efficient. But then it’s kind of morphed into this decentralized template construction, in addition to making the encryption more efficient.

[00:09:29] Talk us through what initially was intended with Stratum V2 and where it was at and why you guys have kind of gone off in your own direction as Stratum V2 is still in works in a very decentralized way with respect to the programmers that are working on it.

[00:09:45] Jason Hughes: So Stratum V1, as I mentioned, was designed as a centralized protocol. There’s a centralized entity that is generating the work that the miner will do. It’s just a way to get the miner to be able to work on it for longer without having to contact that same entity again for more work. It’s not the most efficient protocol. It’s in plain text, it’s unencrypted. So when we’re sending things that are relevant to Bitcoin that are, let’s say, binary data for the coin base, that’s not super efficient to double up on those bites and send it in ASCII as heck.

[00:10:15] So it’s kind of silly. So immediately after Stratum V1 was released, there were proposals to do other protocols that were more efficient on the bandwidth side and converting some of that into binary. And that, Wasn’t initially called Stratum V2, but eventually morphed into Stratum V2, just to get that efficiency gain of being able to add a layer of encryption because you can do security over a binary connection.

[00:10:37] You can do that over Stratum V1 as well, but no one really implemented it. And then Stratum V2 was supposed to solve that efficiency issue and add a couple extensions and things like that. Eventually it morphed into having a way to do your own changes to the block template on the pool side. And then eventually pretty recently being able to construct your own full template on the minor side and negotiate that with the pool.

[00:11:01] The issue with that is that it’s still a centralized protocol. Those aspects of Stratum V2 where the miner is in control of the template are not required. And as far as I know today are not implemented by any pool. There’s I think one pool that implements the centralized aspects of Stratum V2. But that’s kind of predicated on the minor having changes to support Stratum V two, which Stratum V one for the centralized aspects of it works just fine.

[00:11:29] We don’t necessarily need to go to all these vendors and be like, we need you to support Stratum V two. So if you want to do template creation with, even with Stratum V two, you need something external that’s doing that template creation anyway. So your miner’s going to have to communicate with that, which then communicates with the pool, and then you are rewinding your template.

[00:11:46] So since that was the case, we already have Stratum V one. At the time that we started working on Datum, there wasn’t a clear path to being able to do pure decentralized templates. So we just decided to just do our own thing and just make it happen. So Datum is completely decentralized. The pool provides no work to the miner whatsoever.

[00:12:06] The miner has to generate all their work, has to have their own template. And if they don’t have that, they don’t have any work to do. So it’s kind of the opposite of what you would see from a centralized protocol. All right, so let me, let me put this

[00:12:19] Preston Pysh: in the plain text for everybody. So V2 started morphing, it got a little bit more cumbersome.

[00:12:26] It looked like it was going to take a pretty long time for decentralized template construction to really take place. Jason is a man of action. He has extreme technical chops to just say, you know what, I’m just going to kind of code up my own protocol. And, and then did it in what eight months is what I’m hearing for the Datum Protocol, is that correct?

[00:12:49] Jason Hughes: Probably less than that overall. Cause we had a lot of other projects going on, but yes, I mean, it’s, it was conceived of and it’s going to be in beta in about eight months. Yes.

[00:12:58] Preston Pysh: Mechanic take it away. What else am I missing here with the plain text version of what Jason just said?

[00:13:03] Bitcoin Mechanic: No, it’s as remarkable as you present it. Like SV 2 Stratum V2 has been. The fix for mining centralization. When did BetterHash come around? Was it like 2011? It’s been a while. I think it’s 12 or 13 years we’ve been waiting for Stratum V2 to come along and do this. Ocean started. We didn’t start with Datum at the beginning. We were busy doing other stuff.

[00:13:25] Jason’s basically done it. I’m running it. I’m going to show you what it looks like in a minute. And I’m mining my own templates now, on a pool. We’ve done it in a couple of months. It’s really lightweight as well, which is nice. Unfortunately, there’s quite a big Running a node is a bit more hungry than we’d like these days.

[00:13:42] We fought a war over keeping it easy to run nodes and keeping the requirements low. So that’s, that’s really the, the heavy lifting any hardware you have has to do when it comes to implementing this in your own mining setup. Running Datum on top of your node is, it could, if the node was nothing, you could just run Datum on like a Raspberry Pi 3 or something.

[00:14:02] Like, we’re talking like a 15 computer you could use. For running this thing. But as I say, it needs a node and the nodes are quite hungry now.

[00:14:09] Preston Pysh: So Mechanic, before we move forward, I want to pause real fast because here’s the thing. Listeners love a great story. And I think we have a huge opportunity to tell a great story here.

[00:14:20] That is a bit of a tangent, but it also highlights, you know, Jason is such a gifted programmer, such a gifted developer. We got to tell this story. You and I tell this story, as long as he’s not going to be too embarrassed. We’re going to tell you’re fine. It’s not the first time. So, Mechanic, tell the story about Jason and Tesla, just to give the, just, just to give the listeners a little taste of like who we’re dealing with here on the show today.

[00:14:52] Bitcoin Mechanic: All right, let me try and put it in like a context you can fit somewhere. So let’s start by celebrating Jason a little bit as anyone that watched the ocean launch will know this story. Anyway, Jason ran the biggest, well, one of the biggest pools and arguably the first. Least identifiable pool in Bitcoin that was egia. So Ocean V one, as I often like to look at it, and this was sitting on servers in Jason’s house, right?

[00:15:18] And it had like hundreds of thousands of Bitcoins have flown through that pool. Something like 16% of all the Bitcoins there are have gone through blocks. Mind that pool. Is that right?

[00:15:29] Jason Hughes: I don’t know if that’s the right number, but it’s, it’s a lot. It’s a pretty high number.

[00:15:33] Bitcoin Mechanic: It was giant back in the day. Like it was the pool I used and I didn’t know Luke and Jason back then. I would just, it was the obvious choice. It was 0%. It was transparent. None of the other pools were, but anyway, Luke went away and started doing more core development and Jason going to hacking Teslas and did really well at it and discovered a critical flaw in them.

[00:15:53] And realized he could control any Tesla in the world from his terminal and phoned up the tech support on a Friday night and just asked the guy, Are you near a Model S right now? And I presume you asked him if there was like six feet of room in front of it so you could demonstrate the fact that you were able to drive it forward a bit from your laptop.

[00:16:15] And yeah, I think that’s how it went down and a few days later you’re on the phone with Elon Musk. And that’s how we got Luke unbanned from Twitter, funnily enough, because of that personal relationship.

[00:16:27] Preston Pysh: Oh, no way! Yeah. Oh, that’s cool.

[00:16:31] Jason Hughes: Yeah. I don’t know if that’s really been mentioned much, but yeah, I had to make a call.

[00:16:37] Preston Pysh: Which is a whole another, you know, situation. What, what, what in the world? Over to, real fast, I’m kidding. Jason, what in the world made you wanna start trying to crack a Tesla? Just for the sheer challenge or, or what, like,

[00:16:50] Jason Hughes: To be honest, I don’t really know , I, I had bought a Model S back in 20 14, 20 13 or something like that. And it’s basically just a computer on wheels with some motors Yeah. And things. So I wanted to play, do some things with the infotainment and kind of make some tweaks of my own. I mean, it turned out to be basically just a Linux computer. And one thing led to another Tesla has a security researcher program and a bug bounty program.

[00:17:16] So I had joined that when I had found some like really small things initially when I was getting into the infotainment system and one thing led to another. And I find this bug chain that basically lets me control any Tesla in the world. And yeah, so I basically asked him for a VIN. This is the head of security research at Tesla at the time.

[00:17:33] And he gave me the VIN, gave me about 10 seconds and I had that thing fired up and moving and he was like, I got to make some calls, so yeah, that was always a fun story.

[00:17:46] Preston Pysh: What is we could jive on that, I think for the rest of the show, but let’s stay focused here. So this is who we’re dealing with folks.

[00:17:52] This is the guy that wrote the new Datum Protocol, which is. I shouldn’t say this, but it effectively, it’s almost like forking Stratum V2 to kind of push forward this idea of decentralized templates so that if you mine a block, if you’re running your rig and you want to say this is what the block template should look like, these are the hundred transactions I want out of the thousand, these are the ones that are going to be included and Ocean is going live with this.

[00:18:17] We’re recording this prior to their launch, but by the time this airs, yeah. It is going to be actively launched. So walk us through what’s happening in the background. How did you think about this? Very simply for the audience. How did you think about the construction of this to basically enable this type of capability for the user?

[00:18:37] Bitcoin Mechanic: So first off, you need a pool that’s conducive to this in the first place. So there aren’t other pools out there that support Datameer, which is to be expected, but they’re also not about to support Stratum V2 either. Not in that capacity, right? They might, Jason already mentioned one of the pools that allows you to at least have encrypted communication between the miner and the pool, but it’s still all centralized and you’re still only doing work that the pool tells you you should do.

[00:19:01] What we’re doing with Ocean, we’ve made it work on the back end, In a compatible manner for miners that want to run the Datum Protocol and make their own work locally and all they do when it comes to ocean is they reach out to us asking what the split is, which is the one legitimate purpose of a pool to exist.

[00:19:19] You want to solve for cash flow. So rather than I solve a block every 12 months. I collaborate with 12 other people doing the same and I get to have a 12th of that every one month. So it works out of the same amount of money, but it means that you have way better cash flow, right? That’s a crude example, but that is the function of a pool.

[00:19:38] That doesn’t mean that the pool is supposed to sit there and say, Hey, by the way, I’m going to tell you what goes in the blockchain and what doesn’t. That is an overstepping of a boundary and it’s, it leaves us wide open to regulatory capture and censorship and all these awful things. So, Ocean is conducive to that.

[00:19:53] Obviously, having invented Datum, we’ve implemented it on our backend. As of now, there are no other Datum supporting pools. Some may spring up, and that would be great. And, yeah, the ramifications of that are enormous. You have to design it in that particular way, but the fact that we have means our miners are going to be running their own nodes, making their own blocks, they reach out to Ocean to know what the correct split is, and if and when they find blocks, It’s their name that goes up there for everyone to see, not Ocean’s.

[00:20:21] And, importantly, they broadcast the block to the network themselves directly. They don’t need to send it to us, and then we tell the world what it was. Oh, that’s interesting. We’re just cutting out the middleman in every single place we can. All Ocean wants to do is say, That guy did 20 percent of the work, and that guy did 80 percent of the work.

[00:20:38] Here’s the split. Use that, and your shares are all valid on the pool. If you don’t want to use that, You’re solo mining, but either way you’re mining and you’re in control of what you’re doing.

[00:20:47] Preston Pysh: This was the first challenge that I’m thinking through. If you’re going to go through this from like a game theory incentive standpoint, let’s just say that the three of us are operating.

[00:20:57] We’re all providing hash rate. We’re all providing our own block template. And let’s say I find the block and let’s say I’m a total idiot. And let’s say I include the worst types of transactions into this that have the lowest fee. And you guys are very frustrated because we’re sharing the payout, right?

[00:21:14] So how do you guard against the person who’s submitting a block template that’s participating in the pool, but their submission for the template is just idiotic or super low fee when there was an opportunity to have way higher fees in there? How do you handle that when you’re writing this Datum Protocol?

[00:21:29] Jason Hughes: Yeah, I mean, that, that’s actually been a question that’s come up a lot. So one of the things that people have asked, like what happens if somebody minds empty blocks or if I mind this low fee blocks, and that’s what I want to do. For famously Luke likes 300 kilobyte blocks, which obviously aren’t going to include as many transactions, but he’s going to be able to mine those with his hardware on ocean.

[00:21:49] So we had to come up with a way to make it so that this not some, it didn’t some, the other miners didn’t have to subsidize that behavior by taking a lower reward. So the reward system on the back end treats the shares submitted by people using datum as if, so they’re going to be rewarded as if they had solo mined that same block.

[00:22:09] If so, if they had mined 20 percent of that block, they get 20 percent of that block. But it’s kind of hard to explain. So if you, if you extend that out for a long period of time, it will be as if that same person had been solo mining that same type of block. So if you mind empty blocks forever, and you’re expected to find one a year, within a year, you will find three, you will get rewarded 3.

[00:22:31] 125 Bitcoin. But everybody else is going to take. Is you’re going to get a smaller share of everybody else’s blocks who are mining higher fees. And it’s not going to be determined by us, it’s determined by the miners themselves. So there’s no central, like, this is what we expect people to mine, like, no, this is what people are mining and this is what you are mining.

[00:22:51] So your portion of what they are mining is different than what it would be if you were mining the same thing.

[00:22:57] Preston Pysh: Let me repeat. I don’t know if I explained that very well, but let me try to repeat back what I think I heard.

[00:23:02] Jason Hughes: Mechanic might have it better than me.

[00:23:04] Bitcoin Mechanic: Yeah, so let’s get down to like the philosophical question of it. Is it okay for a pool in our position to be treating one share is different to another, right? And some people, this is going to set off an ideological red flag. Like why is the pool saying. That this guy mining empty blocks, his shares are worth less than a guy mining full blocks. How do you determine what should go in a block?

[00:23:26] And if you are doing that, isn’t it all just a LARP anyway? Shouldn’t the pool just, if the pool is going to have any opinion about what belongs in blocks, why even try and decentralize it? If you’re going to nudge miners in any particular direction, I’m just steel manning the inevitable trolls that are going to come and come after us for this.

[00:23:42] Unfortunately, You can’t, that ideology is not realistic in a pooled scenario, because it leaves the pool wide open to attack. We’re a tiny pool, right now, Bitmain, if they wanted to, could come along and destroy us in 5 minutes by mining completely empty blocks with nothing in them whatsoever. And supposing they come and do that and they’re 50 percent of the pool with their attack, which is like A rounding error for them.

[00:24:05] They can come and do that. Mine blocks that have no transactions in them that don’t even claim the subsidy, right? They don’t even claim 3. 125 Bitcoin. They claim nothing. And but they remain entitled to 50 percent of real blocks found by other people. That would mean every one of our miners is suddenly earning 50 percent as much.

[00:24:21] The pool is dead in like hours. It’s over. So it’s, it’s incumbent on us as a pool. To make sure that people can’t attack the pool by mining really stupid blocks, but everything is going to be done transparently and it’s going to be done for very defensible reasons, right? So there is just no other option and it comes down to if you really, really want to do something unique, the ocean doesn’t like you can always just solo mine at the end of the day.

[00:24:48] That’s the end of the day. If you want complete and utter sovereignty. Then you have to solo mine. If you want to split rewards with other people, you’re going to have to play ball to some extent. But as I said, the transparency should make it palatable for everyone. And it’s just the real world calling, right?

[00:25:04] And if we want to decentralize Bitcoin mining, the naive person is just going to say, everyone needs to solo mine. But we know that isn’t possible. It’s not going to happen. There’s always going to be Central points of failure. The point is that those central points of failure do as little as possible having some sort of reward mechanism does what Jason said that is somewhat reflective of what people are doing with their blocks is an important part of it, and I will just round off by saying that transaction fees are important.

[00:25:33] The difference between a miner that mines transaction fees and one that doesn’t is between one and two percent of what comes in in block income. Ninety nine percent of what miners are earning comes from subsidy at the moment. And around one percent comes from transaction fee revenue, which is, it’s, so when people, like, obviously podcast number one that me and you did was mostly about the content of Ocean’s Centralized Templates, which is, are we putting spam in there or not?

[00:25:58] How much op return data are we allowing or not? And it’s just, when you look at the actual numbers, even for like, enormous miners with hundreds of petahash, you’re looking at the difference in revenue of us excluding some op returns, and it comes out to like, 8 a week or something, for someone that’s spending like, 200 grand on electricity a week.

[00:26:17] And it’s like, it’s so irrelevant. Transaction fees are so irrelevant at the moment. We know they’re relevant in the future. But while you’re still getting 3. 125 bitcoins coming out of the chain with new coins every 10 minutes, a couple of 400 bucks in transaction fee revenue or 1000 bucks is it’s just nothing by comparison.

[00:26:35] So these things may need to be tweaked in the future. We may need some new ideas. But we’ve got in 2030, I might start worrying about these things or 2032 rather, cause that’ll be another halving. I think stuff like this starts to become complicated. Then for now, transaction fee revenue is just, it’s almost irrelevant.

[00:26:55] Preston Pysh: Let me try to explain what I think is happening here, and you guys correct me if, if this description’s wrong, but let’s use an extreme example. Let’s say, Jason, let’s say that the block template that you’re submitting has zero fees. You’re basically including the worst transactions and has the lowest fee each time.

[00:27:13] Let’s say the Ocean just found a block. Three of us bring our hashing online, and we’re not going to find another block for two weeks from now. Okay. And so each time we’re submitting this, our template, Jason, you’re submitting the lowest, the worst fees that you could find out of the transactions that are in the mempool Mechanic.

[00:27:33] Let’s say that you’re finding about middle of the road. And then let’s say that I’m always submitting the highest fee transactions into my block template. So the three of us are kind of all. At odds with each other and we do this for a week straight and then all of a sudden the block is found and let’s say that I found the block and I was submitting the highest fee transactions in there.

[00:27:55] Are we all paid equally in that block that was just found based off of that history of the templates that we were constantly submitting for an entire week or are we paid out slightly differently based off of that history of the templates that we were submitting for the week prior. .

[00:28:09] Jason Hughes: So the way the oceans reward system works, it’s very similar to a PPLNS.

[00:28:13] So it’s, we call it tides. We look back at the last eight blocks worth of work to determine what kind of split people get. So it’s, it’s not necessarily 50 percent of the work for the last block, but it’s 50 percent of the work for the last eight. So there’s a smoothing effect there. And that’s. Part of the job of a pool is to iron out variants.

[00:28:33] So we smooth that over eight network blocks worth of work, which is great. Now, as far as the differing rewards and transaction fees, that’s a little different. So what ends up happening is we assign a weight to the actual shares that are submitted based on what your template would bring in for everyone.

[00:28:52] And because of the way it works, if you extrapolate the way that it’s weighted out in the long term, and let’s say you’re mining, let’s just for round numbers, we’ll say you’re mining blocks that bring in five Bitcoin. So if you mind, if you’re expected to find one block a year within a year, you would expect to earn from ocean five Bitcoin, because that’s what you’re mining.

[00:29:13] If you’re mining continuously a five Bitcoin block all the time, and you’re one a year, you should get five Bitcoin. Now Mechanic, he’s might be mining four and a half Bitcoin blocks. These are outrageous numbers.

[00:29:23] Preston Pysh: It illustrates the, yeah, he’s, he’s including different transactions that have lower fees.

[00:29:28] Jason Hughes: So the split looks a little odd because you’re not necessarily getting the exact proportion of Mechanics block that you would expect, or he’s not getting the exact proportion of yours that you would expect for the fee difference. But the way it works out long term is that you are getting what you are mining Based on your own template as if you were solo mining that template with the pool in mind. I hope that makes sense.

[00:29:49] Bitcoin Mechanic: It’s hard. It’s hard to explain. Let’s use real world examples, right? So supposing you’re a Bitcoin exchange and you have a reasonably sized on chain footprint, right? You have you know, a thousand people doing withdrawals every day you batch them up, but you’re still doing like 50 transactions every day And you know that you’re going to have that blockchain footprint no matter what, and you’re mining as well.

[00:30:09] I mean, I can think of examples of companies that actually work exactly like this. They’re going to put those transactions in their own blocks, assuming that they’re finding blocks. If they’re finding, like, a couple of blocks a week, this might make sense for them to do. And why pay any transaction fee at all?

[00:30:24] They can just put them in for zero sats a byte. They can do that, and if they’re going to find a block with it, they might as well do it. The point is, that shouldn’t be, there was a, not an opportunity cost, an actual financial cost to doing that, because they could have put in transactions that paid more in any scenario where there are more transactions out there for them to put in, which is 24 hours a day.

[00:30:45] There’s never blocks that are lacking transactions at the moment. There’s always enough to go around to fill up the block space. So the whole point is that that is not on every other miner on the pool to subsidize the fact that you’re not going to use the block space for some lucrative transactions.

[00:31:01] So you can do it as an exchange. You can start putting your transactions in the block and you’ll get slightly less because your shares are reflective of the fact that you’re trying to mine blocks that wouldn’t be quite as lucrative for everyone on the pool. And the people that aren’t doing that, that are just dumb profit maximizing algo miners that just start from the top down and whatever’s most lucrative, that’s where we start, and we go down from there until the block is full, and we update every few seconds.

[00:31:27] Those miners are going to absolutely max out what they can get per share. And that’s the real world example of it.

[00:31:33] Preston Pysh: I love that. I think that’s fair.

[00:31:35] Jason Hughes: I think that’s the idea. It has to be fair because we don’t want you paying for something that someone else is doing. And I don’t want to pay for something that you’re doing.

[00:31:45] Bitcoin Mechanic: Yeah. It’s the only way to run a pool. I think if you want to go laissez faire with it, which is just let anyone mine, any block that can do anything they want and treat all shares as equal. As I said, that opens us up to attack immediately. You can just start mining deliberately nasty blocks and because of ocean size being so small, you don’t need you with a couple of X a hash for a couple of days, you can ruin the pool and we can’t let that happen.

[00:32:08] We owe it to our miners not to let that happen. And because we’re permissionless, we could never stop it on any other level, right? If centralized pools that required KYC and all that stuff wanted to do what we’re doing with templates, they could more aggressively reject people that were doing silly stuff like that.

[00:32:25] And say, right, we know exactly who you are, because we have, you know, your government ID, your credentials, all that stuff. We assign specific IPs to your facilities, and you’re only allowed to connect if we have the right credentials and all that stuff. If you want to troll us, we’ll just kick you off the pool.

[00:32:41] But ocean’s permissionless, so we have to find other ways in which we can say, Hey, everyone is forced to be sensible. And that’s the only way we can maintain the ethos of the whole thing.

[00:32:50] Preston Pysh: You know, it’s interesting, since you guys launched, I’ve talked to two different people that mind using the ocean pool.

[00:32:58] And both of them, and this was not at the same time, this, these were two different conversations in two different locations at two different times. Both of them swore to me that they make more money on the ocean pool than they had with any other pool. And I say this because I think an outsider who’s only kind of observed and seen what ocean is doing, especially with the templates that they can, I think there’s three templates that they can choose from.

[00:33:24] Appear to have less fees than other pools that are just maximizing for the highest paying transaction. So how is that possible? What’s happening in the background that this outside observer is totally missing? I’m assuming these people are very trustworthy individuals that are providing, in my opinion, quite a bit of hash rate.

[00:33:45] How is this possible? Explain this to the listener who hears this and they’re shaking their head like, come on, there’s no way.

[00:33:50] Bitcoin Mechanic: Yeah, I think, like, incredulity is natural, but certainly our miners have been making more, and there’s a very, very obvious and intuitive reason for that, is that we cut out a middleman, that’s all.

[00:34:01] So, my analogy for it is supposing you, like, you can plant crops yourself and farm them, and you might have a good year or a bad year, like, you get, you know, 800 tons of apples one year, and then next year it sucks for whatever reason the weather was bad. If you can’t deal with the fact that there’s variety there, some years are good, some years are bad.

[00:34:19] You pay someone else to go and farm on your behalf and they guarantee you a set amount of apples every year. They’re going to make a very low guarantee because they don’t want to be on the hook for stuff that simply doesn’t exist. So in the Bitcoin mining world, with Ocean, miners have to deal with variance, right?

[00:34:35] Some blocks might have no transaction fees in them. Some blocks might have millions of dollars of transaction fees in them. We don’t know. We don’t make any guarantees to that effect. What we do say is that if you’re 50 percent of the pool, you get 50 percent of what comes out of the chain. That’s it. We don’t even touch it.

[00:34:51] The minute that money exists, it’s already yours, and you can’t even mine unless you’re using a Bitcoin address. So we won’t even let you mine with us unless we have a way to give you your money, or when the money gets created, it gets created on your address, not anything to do with us. None of the other pools operate this way anymore, with a couple of very small exceptions.

[00:35:11] Everyone else has opted for that model I was talking about where someone goes away and says don’t worry about farming, I’ll go and like do all the, I’ll plant all the trees, I’ll deal with the weather sucking some years, I’ll deal with the fact that a volcano erupted and made there be no sunshine one summer or something like that, I’ll guarantee you apples.

[00:35:28] If they do that, that is a type of insurance product. That is an extremely expensive product to offer for people. It’s great because if you’re selling apples and you know exactly how many you’re going to get, that’s pretty nice to run a business that way. But it means you’re getting a lot less apples.

[00:35:45] Because no one is going to put themselves in a position where they give you everything you could possibly have gotten by yourself taking on the variance. Someone’s got to deal with the variance of the blockchain and it’s unpredictable. We don’t know how many bitcoins are going to be created over any one time period.

[00:35:58] And every single miner pretty much, I’d say around 98 to 99 percent of miners on the network at the moment are out there saying, I don’t want to deal with variance. I just want to get paid a consistent amount so I don’t have to think about it. And the middlemen have sprung up to create a business to that effect.

[00:36:16] Are taking a massive cut for themselves because they have to, otherwise they’ll immediately go bankrupt because of how unpredictable the blockchain is. So with Ocean, it takes the opposite approach. It just says, miners, we don’t want to be a middleman. Come along, come and deal with the variants. You might have three days that suck.

[00:36:33] You might have one day where you earn eight times what you expected. You don’t know. But the point is, at the end of the day, you’re going to get more revenue if you can handle it. So it’s the low time preference pool. It’s the pool that says, if you’re not worried about the next 24 hours, but you want to have a better month than you would have anywhere else, come and mine on Ocean.

[00:36:50] But the flip side of that is, if you cannot wait an entire month, if you’re into clown world fiat games, and you need everything to work out over a 24 hour period, and you need all of the right paperwork and all that stuff, and you don’t want to deal with the nasty cypherpunk blockchain and all that stuff, if you want to just rent your hash rate to someone that’ll give you a fixed amount for it.

[00:37:10] You can do it, but obviously you’re not going to get the same revenue. So it should be pretty intuitive, right? And it’s funny because the irony is, we had functional spam filtration when we launched with our centralized template. And everyone was like, well, that’s open and shut case. There’s going to be less money for the miners mining on ocean.

[00:37:26] And then every single report came out and said, nope, I’m earning more. So why is that? And it wasn’t just that, right? We had a bunch of other factors. We got unlucky with our blocks. We got unlucky in times of historically high fees, so we got unlucky during December 2023, and we got unlucky during the halving, not finding a single block.

[00:37:44] We found three empty blocks, which was insane, because for some reason Ocean likes to find blocks eight seconds after the last network block, which is when they’re very likely to be empty.

[00:37:53] Preston Pysh: But you still got the block reward. It wasn’t like there was no block reward,

[00:37:57] Bitcoin Mechanic: But I mean, that’s important for people to know that you have these compounding factors that meant ocean should at least been paying out the same as other pools or slightly worse, but it wasn’t, it was coming in above 10 percent better than all the others and everyone’s like, how can this be?

[00:38:10] Ocean charges, 0 percent fees. The other pool charges 2 percent and I got 16 percent more mining on ocean. That doesn’t make any sense to me. They’ve been unlucky and all these things. And it was just because. Hey, it’s very simple. The other pools, the fee they charge you does not mean you’re split from the blockchain minus 2%.

[00:38:29] That’s not what that means. Ocean is giving you a direct split from the blockchain. Other pools are giving you an FPPS calculated rate minus 2%. Now the FPPS calculated rate doesn’t match up with what comes out of the blockchain. And when you dig deep, you realize that no one could afford to run an FPPS pool anyway, unless they have enough money.

[00:38:48] Provisos and quid pro quos and you know terms and conditions and all that stuff that could mean hey if I go on an unlucky streak I’m not bankrupt in 24 hours I can still run my pool so they have to take a big cut to do that and the point is it gets bigger and bigger and bigger because bitcoins. Fee, Bitcoin’s fee revenue gets less and less predictable versus subsidy.

[00:39:08] Every halving, it becomes harder and harder and harder for miners to predict what they’re going to bring in from the chain. So, FPPS is basically a dying model. Ocean comes around at the same time. The whole concept of what we wanted to do It was decentralized templates, but then the payout system started to become one of the most important things about what we’re doing because we’re looking at FPPS.

[00:39:28] We’re saying miners have all gone for the centralized option of I want guaranteed income. I don’t care about overall revenue. I don’t care about having any sovereignty in this. I just want consistent income. And then a bunch of companies come around that say, we can provide that for you. We will be the most insanely large middleman.

[00:39:44] We will take an enormous commission that won’t be included in the percentage we charge you. It will be a separate kind of commission, like those airports that say, you know, 0 percent currency conversion commission. And you know, it’s nowhere near market rate. You’re off by like 15%, but it says 0%, right?

[00:40:02] It’s just not included in that. So, I think everyone agrees, like, we’ve got some friends that work for FPPS pools that are like, yeah, this is over, we can’t maintain this, like, the cut we have to take to be able to weather any unlucky storm is just so big that it’s eating into miners revenue too much, we hate doing it, miners are losing loads of money doing it too, it’s over, so, the fact that Ocean came around to decentralized templates at the time that the dominant payout method would also be kind of dying, it’s kind of poetic that that happened, because we’re saying, look, You guys, you’ve gotten used to the free lunch, and it isn’t a real thing, and it’s not sustainable.

[00:40:37] No one is gonna say, hey, I’ll pay you 50 percent of what comes out of the chain if you’re 50 percent on my pool, and I’ll do that no matter what happens, even if I go unlucky and don’t find any blocks. No one’s gonna do that. It’s Bitcoin. No one’s able to print this stuff and say, don’t worry miners, we’ll just, we’ll just bail you out.

[00:40:53] Right? If you get in over your head, it’s Bitcoin. That’s the whole point, is that you can’t play those kinds of games.

[00:40:58] Preston Pysh: Just for folks that are listening that the term F P P S stands for full pay per share This is a common term in the mining space for how the reward is paid out to everybody inside of the pool I have heard and I can’t remember the explanation that I had heard from somebody as to why?

[00:41:15] Ocean is struggling to get large mining publicly traded companies to start participating on the pool Help the listener understand why or what type of roadblocks you guys are running into and what effectively needs to be solved for the bigger, the ones that are providing large amounts of hash rate to start utilizing the pool.

[00:41:35] Bitcoin Mechanic: Do you want to touch that Jason?

[00:41:36] Jason Hughes: I mean, there’s, there’s not a whole lot on the technical side. I mean, on the technical side, it works just like any other pool currently. With decentralized templates, we’re trying to keep that inertia low as well. A lot of it seems to be some regulatory stuff. Let’s not even really regulatory, like SOC 2 compliance and things like that.

[00:41:53] That’s what I had heard. So what is that? Yeah. Help me understand. My understanding of it, and I’m not an expert here, is that that’s, it’s kind of a framework for auditing how, how a company does things internally to make sure there’s processes for onboarding and offboarding, for example, and to monitor what employees do and all of this framework that you have to kind of fit into in order to get this piece of paper that says I’m compliant and a lot of people, a lot of these companies look for that, even though, in my opinion, that piece of paper is not really good for anything.

[00:42:24] It just says that we jumped through these hoops. Okay. That doesn’t necessarily mean you’re secure. It doesn’t necessarily mean you have a product that’s worth using. It just means we jumped through these accounting hoops. And from looking at that, we actually looked at trying to do that because that’s been requested by some of the larger entities that are like, we’d like what you’re doing and we want to jump on board, but we need this checkbox.

[00:42:47] And it’s not been an easy thing because for us, what we’re doing is so far outside of these boxes that they put this compliance stuff in that it doesn’t work very well. I think we’ll be able to pull it off as a company. I think we’ll be able to do the SOC two stuff, but it’s not super easy because we are, we’re permissionless.

[00:43:06] We’re non custodial. We don’t have the information that some of these audits really want. And frankly, some of the things that they want to audit do make, you know, Some of the process is less secure and we want to be secure. We don’t want people to be able to get into things in ocean and cause problems for our customers.

[00:43:21] And I like to think that we do a very good job on that. And by going through these processes and having to change some of that to fit molds, we’re now creating a larger attack surface for things. If everybody has to do something one way, we run into the problem was like, well. All the attackers only have to find one way in and it kind of ends up being like the recent thing with cloud strike.

[00:43:43] All of these companies use this one compliance related software in order to check that box and look what it did. I don’t want to be one of those. And I think we need a better route. And I think a lot, a lot of it is these companies need to stop requiring everybody fit into this box, which that that’s a longer term change. So the irony of this. Go for it.

[00:44:03] Preston Pysh: No, no, no. The irony is, is that it’s a security thing that they basically want you to have data that then can be audited and you’re saying, hold on, we’re going point to point here. We’re not collecting the data by design so that it’s more secure, so that it’s more secure.

[00:44:18] Bitcoin Mechanic: Well, you’ve got to collect it so that we know you’re doing it securely. And we’re like, it’s definitely more secure to not have it in the first place. Government bureaucrat. I don’t understand. Sorry. You just need to get this. That’s wild. We made a joke about them saying like, we want to look at your private keys to make sure they’re securely generated.

[00:44:34] Like just the government bureaucrat’s idea of what a secure computing process is is just painful. And it was a pretty nice vindicating moment when CrowdStrike happened and we’re like, yeah, this is, we’re not going to have that. And it is a SOC 2 compliant thing, is CrowdStrike. Like that is one of the ways you can get the box ticked.

[00:44:52] And we’re like, demonstrably, this stuff is not good. So, but to, to go back to the question you originally asked, the first exahash is the hardest, and we got that. And then we got the second exahash, which came a lot easier. We’re below that at the moment, but that’s just, it goes up and down. But we’re getting there.

[00:45:08] And the bigger we get, the easier it is for other people to join, because the lower our variance gets. The trade off with Ocean, just so I can fairly present everything, and not just pretend we’re the magic fix for everything, is you have to deal with variance when you mine on Ocean. And for some people they just can’t deal with that.

[00:45:23] I do know miners that have to pay power bills every 24 hours, and Ocean will definitely go 24 hours without a block, and does so between most of its blocks. So, that’s not viable. However, if we gained another 50 exahash tomorrow, then it would be viable. And the more hashrate you get, the more easier it is for other hashrate to come on.

[00:45:40] So, Trying to get the party started is incredibly difficult, but once it’s there and there’s loud music blaring and lights flashing all over the neighborhood, other people do just start showing up, right? No one wants to be the only guy at a party. So, it’s very much just like that. Do you want me to show you a Datum client running?

[00:45:57] Yes, definitely. Let’s see that. All right, let me share my screen and this might be the first time I don’t accidentally share it with like a personal email or something by mistake. No, you’ve disabled it. You’ve got to enable screen sharing.

[00:46:10] Preston Pysh: Is this SOC 2 compliant? Let’s see. For people that are curious, SOC 2 stands for Service Organization Control 2. I don’t know, it’s government stuff. There’s the hangup. Let’s see here.

[00:46:21] Jason Hughes: Well, while they’re doing that, one of the things about SOC 2 is like, their big thing is protecting customer data. And I just find it quite ironic that it’s something that people want of us when we have no customer data. So, just throwing that out there.

[00:46:35] Bitcoin Mechanic: All right, I’m sharing screen. So yeah, you can see my terminal screen here, right?

[00:46:39] Okay, so this is a Bitcoin node up top doing what Bitcoin nodes always do. This was the last block we found. Block 862, 560. But you can see all these create new blocks. That’s the Datum server reaching out and saying, can you create, oh, we just found a new block.

[00:46:52] And then immediately Datum said, I need a new block template. And that happened in like 90 milliseconds or something insanely quick like that. Down here is the Datum server. So you can see I’ve got a little Avalon in my bedroom keeping it warm. That’s the one Stratum client that’s connected to my Datum server.

[00:47:09] That’s doing work I created using my node. And the DATM server also reaches out to Ocean and says I need the coinbase split to include in these blocks I’m creating. And Ocean provides that, and so what that means is I’m essentially solo mining except I’m going to get reward splits on Ocean, because all of these All of the proofs of work I do here, I submit back to my Datum server, and then that gets submitted back to Ocean.

[00:47:33] And Ocean says, yep, these are all valid, and these all have the correct split. So, you’re entitled to a split of what happens with every other block on Ocean. So this is the dream. This is how pooled mining should actually work. And it does, I’m actually doing it now and that’s it. So it’s super lightweight.

[00:47:50] You can just run this on top of a Bitcoin node. There’s a tiny bit of configuration that needs to be done, but it is very, very simple. And I even have it packaged up for start nine if anyone knows start OS. Which is one of the node solutions that people have, where you can just run your own home server.

[00:48:06] Company I used to work at, and it’s all pre configured there, so it’s really easy. You just install Datum, and it sits on top of the Bitcoin node. It configures itself to work with it, and then you just point your miners at it. You get the IP address of the server, you get the port of the service, and that’s it.

[00:48:20] Then your miners are all mining your own locally made work. And you don’t even need to change any of the usernames or anything, if you’re already on Ocean before. It all just works and goes straight through. And if and when you find a block, you get to stamp your name on it. That’s the secondary coinbase field.

[00:48:36] And you can write whatever you want. You can mine blocks that say Preston Pish. And then you get, you still get cash flow all year, but when you eventually get lucky and find that block after a year or three years or however many years it takes you to find a block with whatever hash rate you have.

[00:48:50] Suddenly that’s your name up there and it’s a bunch of transactions you wanted that can be a lightning channel open, right? That you wanted to pay one sat per byte for that was 10 million sats in size and you can use it for years. It cost you nothing to open it, right? And you waited around, you were happy to be patient.

[00:49:06] That’s what we’re building here. And well, I should say that’s what’s been built. It works at the time of this recording, which is 23rd of September, but this thing is probably going to be uploaded in a couple of weeks. And by that point, if we’re lucky, someone will have already found a block on Ocean that was made locally with their name on it.

[00:49:25] And at that point, we’ve done what Bitcoin needs, which is if someone comes to a mining pool like Ocean and says, You have to be OFAC compliant, or you have to observe this blacklist of transactions. We get to say, we have no control over that. You need to go and find the miner that did it. Here’s his Bitcoin address.

[00:49:44] Good luck. That’s what Bitcoin needs. And that’s what we’ve built.

[00:49:48] Preston Pysh: Yeah, I love that last comment because that is truly what keeps Bitcoin decentralized and operating its core mission, which is free and open decentralized money where nobody has to ask for permission and no government can stop it. Guys, this is mind blowing.

[00:50:05] Jason, huge kudos to you, sir, and your contribution here. Mechanic, bravo, sir. I love the fact that you’re running this already. How exciting. Again, in the show notes, we’ll have the link to our first conversation, which goes into a lot more detail on just like block templates and why they’re important and whatnot.

[00:50:25] Anything else that you guys want to highlight that I know the Ocean website is ocean. xyz. If people want to look at that, look at the hash rate, there’s all sorts of really cool metrics. You guys, Jason, are you active on Twitter? I know Mechanic is. Yeah, I am. I’m WK057 on Twitter. Okay. All right. We’ll have a link to your Twitter profile in the show notes and anything else that you guys want to highlight.

[00:50:46] Jason Hughes: Yeah, I guess the big thing is we’re trying to move from something that miners are very comfortable with, which is just setting up their machine, pointing it at a pool and dealing with that. And we’re trying to literally put more work on them for the good of the network. And that’s not necessarily an easy thing.

[00:51:02] So the inertia has to be low. And I think we’ve accomplished that with datum by making it as easy as possible to go from where you already are as a minor mining on a pool in a centralized capacity. To mining on your own node. I don’t think we could make it any simpler than it is now. And I think that was a big important thing about it because if it was going to be incredibly difficult and incredibly complicated to do this, regardless of how good it is for the ecosystem, there were going to be a limited amount of people doing it. That’s a big checkbox that I think we’ve pulled off.

[00:51:31] Bitcoin Mechanic: Yeah, I think it’s good to reiterate this. Bitcoin needs some decentralization and it needs it yesterday and we need practical solutions for that. And this is what that is.

[00:51:41] Preston Pysh: I love it. If people are operating their own mining rig and they want to participate in this, how can they learn more?

[00:51:48] Just go to the ocean dot X, Y, Z website. Or what do you guys suggest?

[00:51:51] Bitcoin Mechanic: You can just harass us on Twitter. You can come in on this discord. You can do anything you like. Luke is very active on Twitter as well. We’re very, very quick with the support. We’re on Noster as well, and you can carry on watching these podcasts.

[00:52:04] We’re going to hopefully do a few more explaining things once it’s up and running. I’m planning, Bob Burnett, who as well, he wants to do an Old Man Yells episode on Datum as well, and we can get into some more technical aspects maybe. Yeah. There’s a bunch of things we can do. And yeah.

[00:52:19] Preston Pysh: All right. Fantastic guys.

[00:52:21] Thank you for your time today. This is mind blowing stuff that you guys are doing. I’m just sitting here in awe, like looking at everything that you’ve built, but thank you so much for making time and coming on the show. No problem. Thanks. Thanks for having us.

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