Generalized Mining

The Primer (Prague, November 2018)

What is Generalized Mining?

Generalized mining (also:“keeping”, “supply-side services”, and “mining 2.0”) refers to the cryptoeconomic games implemented by decentralized protocols that users can play to earn cryptocurrency-denominated compensation.

Decentralized networks typically require hardware, software, or manual services in order to function. However, they cannot provide such services themselves (for reasons of both economics and decentralization) and therefore rely on users, investors, and other third parties for service provision. Decentralized networks make use of cryptoeconomic mechanisms to incentivize third parties, creating compensatory opportunities. Examples of such services include transaction processing, staking, computational resource provision, software or Merkle Mining, content curation, market making, and more.

Generalized mining has the potential to benefit all actors on a network, including providing better network operation to end users (the demand side) and earning incentives for service providers (the supply side). As decentralized networks become ubiquitous and the design space of cryptoeconomic mechanisms expands, the set of possible generalized mining activities grows and presents compensatory opportunities for protocol participants.

The Network Perspective

Decentralized networks need hardware to provision them, software to secure them, public stakeholders to govern them, and a long list of services to enable them to function in a trustless and distributed manner within their business domain. The very first such network, Bitcoin, incentivizes third parties ("miners") to provide security and transaction processing to the network through the process of mining, in exchange for minting new Bitcoin.

Since the creation of Bitcoin, this trend has continued but has become unbundled. Today, networks incentivize the provision of many other kinds of services. One major area is resource provision in networks that enable decentralized computational services such as storage, computation, transcoding, rendering, and more. Another area is curation of content on social media networks such as Steemit or Relevant. Decentralized finance (DeFi) creates opportunities to provision liquidity in the form of lending, borrowing, market liquidity, and insurance.

The concept of “active network participation” is the idea that investors in decentralized networks should also be users or participants. Doing so may increase the chances that the network is successful by influencing governance and making capital productive.

Resources on Generalized Mining

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