White House Proposed 30% Tax on Cryptocurrency Mining
White House advisers are calling on congress to approve a 30% tax on the electricity used in cryptocurrency mining to curb the industry’s impact on climate change. The tax would be phased in over three years, beginning at 10% next year and rising to 30%. The cryptocurrency mining industry is estimated to account for 0.9% to 1.7% of all US electricity use, while 25% of US greenhouse gas emissions come from burning fossil fuels to create power. The tax could raise around $3.5bn over a decade and would be an example of the Biden administration’s efforts to fight climate change and reduce energy prices.
Critics argue that the industry is being unfairly targeted and that the proposed tax will hamstring the industry, which they believe is not supported by President Biden’s administration. “Proof-of-work” cryptocurrency mining is the most energy-intensive mining method, requiring huge amounts of electricity as supercomputers compete to solve mathematical puzzles. Some estimates claim the process consumes more power than the entire country of Australia, with 34 large-scale bitcoin mines collectively using as much electricity as three million US households.
Furthermore, mining difficulty increases the more participants join the network. So the cost to process transactions ramp up, as more people use the network. Many believe it should work the opposite way.
While advocates for the industry argue that it has benefits for its users, White House advisers believe that crypto-mining companies need to pay their fair share of the costs imposed on local communities and the environment. The White House counters arguments that the tax could penalise crypto mining companies that use clean energy, saying any increase in electricity usage makes it harder to “green-up” the grid because much more clean energy is needed. Read more here.
The Splitchain network presents a sustainable and efficient option to traditional cryptocurrency networks that depend on energy-intensive mining, a major contributor to greenhouse gas emissions, without the need for such tax incentives. Unlike such proof-of-work networks, Splitchain does not rely on mining but rather a unique truthful settlement algorithm to complete transactions for its native token Zucoins. This significantly reduces the environmental impact associated with transactions, making the process so cheap to run, that it can effectively eliminate transaction fees and requires only minimal storage needs compared to traditional blockchain systems, making it more accessible and cost-effective for both users and developers to build on the network.
Solana Struggles with MEV and Spam, Seeks Flashbots-bandaid
Solana, a scalable applications blockchain platform, faces a significant challenge in Maximum Extractable Value (MEV) and spam, despite having averted several MEV issues in comparison to Ethereum.
According to Eugene Chen of Ellipsis Labs, Solana’s MEV is in a primitive stage like Ethereum in 2019, but developers can learn from Ethereum’s MEV research. Lucas Bruder from Jito Labs illustrates the spam issue with recent statistics revealing that 60% of Solana’s computing power is spent on arbitrages with a 98% failure rate, as spamming remains the best way to land a transaction.
To tackle the spam problem, the “Jito-Solana” client uses a “Flashbots”-like bundle mechanism, slowing down time and introducing a waiting period for transactions to accumulate. This approach involves a few techniques, such as processing bundles simultaneously and being difficult to interrupt, which are strong selling points for people currently spamming transactions. The bundle is prioritised via a special transaction pipeline, offering better ordering guarantees and skipping congested channels.
Only 24% of Solana stakeholders have so far adopted this solution, called “Jito”. However, they anticipated that the next 80% of adoption would be comparatively easier. This progress is crucial for mitigating MEV and spam challenges. However, a fee war could ensue when activities become contested, prompting participants to extract value more efficiently using bundles, similar to the current situation with Ethereum. Read more here.
What is MEV and why it’s not an issue when using Splitchain
Maximum Extractable Value (MEV) refers to the maximum profit that can be obtained by participants in a blockchain network, such as miners or validators, by manipulating the order or inclusion of transactions. MEV arises due to the ability of these participants to reorder, censor, or insert transactions within a block before it is added to the blockchain.
MEV can have several negative effects on the system:
- Network congestion: Participants aiming to extract MEV may flood the network with transactions, causing congestion and slowing down the processing of other legitimate transactions.
- Unfair advantage: MEV allows certain participants to gain an unfair advantage over others. They can prioritise their transactions or exploit arbitrage opportunities by front-running or sandwich attacks, leading to an uneven playing field. This has been common in high-value NFT auction sales, where a transaction sandwich bidding attack happens, by sending a transaction with slightly higher/lower transaction fees into the processing queue, to quickly jump into certain spots.
- Increased transaction costs: The competition for MEV can lead to higher transaction fees as participants try to outbid each other to have their transactions included in the next block, making it more expensive for regular users to interact with the network.
- Centralisation risks: The pursuit of MEV can incentivise collusion between miners or validators, leading to the centralisation of power and potential threats to the decentralised nature of the blockchain network.
- Reduced security and network trust: MEV can create incentives for participants to engage in malicious behaviour, such as reordering or censoring transactions, which can undermine the trust and security of the system.
Splitchain, with its native token Zucions, offers a very different kind of network that effectively tackles these challenges. Splitchain’s design enhances receiver security by integrating two-factor authentication into every transaction, into the main layer 1 component of the Splitchain system. This enhanced security layer heightens accountability and prevents the denial of illicit transactions, fostering a more secure and reliable platform. Splitchain’s cutting-edge network presents a robust and competitive solution in the decentralised applications space, successfully addressing MEV and spam-related issues.
Why is this an issue beyond spam? A great recent example is Tornado Cash, a crypto funding mixing service, that was used to make crypto transactions harder to trace. Tornado Cash was recently sanctioned and effectively made illegal in the US. To protest this action, some users of Tornado cash started sending cryptocurrencies to known celebrities and prominent figures’ crypto wallet addresses. As Bitcoin, Ethereum and most other blockchain transactions are 1-way, you can’t deny a transaction. people.
This created a problem for these prominent people, as they immediately were associated funds that the US gov deemed potentially funding criminal or terrorist groups. It took a bunch of untangling that is still underway to this day, causing many headaches for those affected.
Splitchain’s novel, in-built 2-factor transaction process sidesteps this entire scenario by requiring both the sender and receiver to accept a transaction, preventing such spam. This also makes it easier to
Bitcoin Transaction Fees Soar Amid Frenzy of BRC-20 Tokens and NFT-like Inscriptions
A surge in Ethereum-style “BRC-20” tokens and NFT-like inscriptions on the Bitcoin “Ordinals” project, has caused a spike in transactions on the Bitcoin blockchain, driving average transaction fees to a nearly two-year high of $7.25. This increase has significantly boosted miners’ revenue, as total fees have risen by 484% in the past 14 days, reaching around 124 BTC or approximately $3.5 million. The BRC-20 token type, which enables the issuance and transfer of fungible tokens on the Bitcoin blockchain, has accounted for 6% of all Bitcoin activity since its launch in early March.
The primary driver of this surge in transaction fees is the rise of Ordinals inscriptions, which are similar to NFTs and can be images or text strings embedded in Bitcoin-based transactions. The adoption of the BRC-20 standard is also contributing to the increase in fees. Experts have varying opinions on whether this spike is temporary or will persist due to the popularity of NFTs.
Miners, who secure and maintain the Bitcoin network, benefit from the recent rise in BTC transaction fees, as they receive rewards in BTC fees for processing users’ transactions. Read more here.
Zucoins: A Minerless Alternative to Traditional Crypto Networks
Zucoins, the native token of the Splitchain network, offers a unique advantage due to its extremely cooperative, not competitive, transaction settlement algorithm. This eliminates the concerns raised in previous articles about individuals trying to extract maximum value from traditional cryptocurrency networks, often to the detriment of everyday users. Splitchain’s Zucoins token stands apart from traditional crypto networks and centralised financial institutions, providing users with a more user-friendly and cost-effective alternative for their transactions.
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All the best,
Peter
MyZucoins