Luxor Technology wants to facilitate Bitcoin exploitation. This is why the company has deployed a variety of products (mining pools, hashrate derivatives, data analysis, ASIC brokerage) to help bitcoin, large and small, develop their operations.
Aaron Forster, director of business development of the company, joined in October 2021 and saw the team go from around 15 to 85 people in three and a half years.
Forster worked for a decade in the Canadian energy sector a decade before coming to Bitcoin Mining, which is one of the reasons why he will talk about the future of mining in Canada and the United States at the BTC & Mining summit during the consensus this year, from May 14 to 15.
In the head of the event, Forster shared Coindesk his reflections on Bitcoin minors turning to artificial intelligence, the growing sophistication of the mining industry and the way in which Luxor products allow minors to cover various forms of risk.
This interview was condensed and published for more clarity.
Operating pools allow minors to combine their calculation resources to have higher chances of receiving Bitcoin block rewards. Can you explain to us how Luxor’s mining pools work?
Aaron Forster: The mining pools are essentially aggregators who reduce the variance of solo exploitation. When you look at the solo exploitation, it’s very lottery, which means you could connect your machines and you could hit the block rewards tomorrow – or you could knock it at 100 years. But you always pay the energy during this period. On a small scale, it is not a big problem, because you emit this and create a business around it.
The most common mining pool type is PPLN, which means payment by plane-n-shares. Basically, this means that the minor is only paid if the mining swimming pool strikes the block. This is also due to the variance of luck, so it is no different from the situation of this solo minor. However, this creates income volatility for these major industrial minors.
We therefore see the emergence of what we call in its own right, or FPPS, and it is Luxor for our Bitcoin swimming pool. With FPPS, whether we find a block or not, we always pay our minors their income depending on the number of shares they have submitted to the pool. This gives a certainty of income to minors, assuming that Hashprice remains the same. We have effectively become an insurer.
The problem is that you need a very deep and strong assessment to support this model, because although we have reduced the variance for minors, this risk is now put to us. So we have to plan this. But it can be calculated over a sufficiently long period. We have different partners in this regard, so that we could not bear the full risk of our balance sheet.
Tell me about your ASIC brokerage business.
We have become one of the main suppliers of equipment on the secondary market. Mainly in North America, but we have shipped in more than 35 countries. We treat with everyone, public enterprises to private companies, from institutions to retail.
We are mainly a broker, which means that we correspond to the buyer and the seller, mainly on the secondary market. Sometimes we interact with the manufacturers of the ASIC, and in some cases, we take the main positions, which means that we use money from our balance sheet to buy ASIC, then resell them on the secondary market. But the majority of our volume comes from assorted buyers and sellers.
Luxor also launched the first term contracts on Hashrate.
We try to repel the extraction space of Bitcoin forward. We are a hashrate market, depending on how you look at our mining pools, and we wanted to take a big leap and make hashrate in the tradfi world.
We wanted to create a tool that allows investors to take a position on hashprice without effectively having mining equipment. Hashprice is, you know, the hourly or daily income that minors get, and this fluctuates a lot. For some people, it is coverage, for others, it is speculation. We create a tool for minors to sell their front and use hide as a basic guarantee or a way to finance growth.
We said: “As much as minors are essentially selling to have a hashrate, receiving bitcoin in advance, then they can take this and do everything they have to do with it, whether it is to buy ASIC or extend their mining operations.” It is essentially the guarantee of the hashrate. They are therefore obliged to send us x Hachat amount per month for the duration of the contract. Before that, they will receive a certain amount of bitcoin in advance.
There is an imbalance between buyers and sellers. We have a lot of buyers, which means that people and institutions want to earn a return on their bitcoin. What you lend your bitcoin is indeed your interest rate. However, you can also look at it as if you buy this discount hatch. This is important for institutions or people who do not want a physical exposure to Bitcoin exploitation, but who want an exhibition at the hash price or a hashrate. They can do it synthetically by buying bitcoin and putting it on our market, lending this effectively, earning a return and buying this hatch at reduced prices.
What do you find the most exciting in Bitcoin exploitation right now?
The acceptance and natural progression of our industry in other markets. We cannot ignore the AI HPC transition. Instead of building these mega mines which are only massive buildings with dense bitcoin extraction operations, you are starting to see large minors turn into power infrastructure providers for artificial intelligence.
The use of Bitcoin exploitation as a springboard to a larger and more high capital industry like AI is exciting for me, because it gives us a little more acceptance, because we come from a completely different angle. I think that the biggest example is the basic structure of the basic scientific basic agreement, how they have somehow merged these two companies together. They are complementary to each other. And it’s really exciting.
When you look at our own product roadmap, we have no choice but to follow a roadmap similar to bitcoin minors. Many products that we have built for the mining industry are similar to what is necessary at a different level for AI. Be careful, it is much simpler in our industry than in AI. We are our first step in the HPC space, and it is still very early.
