Top Bitcoin Mining Pool Stops Withdrawals
A crypto mining pool that accounts for nearly 10% of bitcoin’s computing power has cut withdrawals, citing liquidity issues as it blocks members from accessing their cryptocurrency.
Many of the crypto insolvencies and bankruptcies seen in recent months by firms such as Celsius, Voyager Digital and Three Arrows Capital all trace back – either directly or indirectly – to the collapse of the Terra/LUNA stablecoin ecosystem.
Read more: How a $48 Billion Stablecoins Collapse Rippled Over Crypto
But Poolin, which allows individual miners to pool their computing power and get a share of new bitcoins and ether mined, isn’t a bad-loan lender or a bad-investment hedge fund. Instead, it is a collective of bitcoin and ethereum miners who pool their computing power in exchange for a share of the 6.25 bitcoins earned when a member wins the right to add a new block of transactions to the blockchain.
There are many reasons to withdraw earnings – especially to put them under your own control in a safer, private cold wallet. However, Poolin’s vague statement that it is trading due to unspecified “liquidity issues due to the recent increase in withdrawal demands” is worrying – especially as it claims that its “net worth is positive” and that all of its users’ assets are safe.
Still, one of the fundamental reasons to cash out is to sell the bitcoin, which suggests that more people are getting out of crypto, even with bitcoin currently below $20,000. Bitcoin earned can be used to rent hash power from Poolins mining farms, which increases income.
However, most miners are hodlers — “hang on for life,” a term popular among crypto believers — so it’s a potentially worrying sign for the industry if they’re withdrawing money.
Possible DeFi connection?
While it is not clear — nor has it been suggested — that Poolin’s problems are related to the failure of the Three Arrows Capital hedge fund that owed billions to many of the crypto lenders that faced insolvency as a result, it did business with the fund, BeInCrypto reported. It also did business with BlockFi, a crypto lender saved from insolvency by FTX crypto exchange CEO Sam Bankman-Fried’s backing.
But it had also dabbled in decentralized finance (DeFi) — particularly risky yield agriculture, according to Cory Klippsten, an analyst for Swan Private, a firm focused on advising companies and high-net-worth individuals on bitcoin investments.
See also: DeFi Series: What is Yield Farming and Liquidity Mining?
“All the way back in February 2021, Poolin was in DeFi yield farming. What could go wrong??” he tweeted on 5 September, after the withdrawal stop was announced.
Pull out
A week ago, Poolin represented almost 10% of the global “hash power” – the total computing power working to mine bitcoin. That made it the fifth largest mining pool, according to BTC.com. Now it has only 4.6% and is in eighth place.
Miners who cannot withdraw bitcoin and ether in their accounts withdraw their computing power, which they can easily exchange to another pool. As such, the amount of bitcoins Poolin earns will be more than half, which cannot help ease liquidity problems.
Bitcoin’s blockchain is secured, and new blocks of transactions are added to it via a consensus mechanism called proof-of-work, or PoW, where miners race to solve a math puzzle that gives them the right to verify the accuracy of transactions, add them to a block and enter it on the bitcoin blockchain. In exchange, they get newly minted bitcoins – currently 6.25 BTC per block.
Learn more: Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?
It is this data-driven math race that causes bitcoin’s huge electricity bill, as well as the resulting pollution that has caused so much opposition to the currency. Mining pools like Poolin are where most of this work is done.
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