Aiming to simplify the process of bitcoin mining, Luxor Technology has introduced a wide range of services including mining pools, hashrate derivatives, data analytics, and ASIC brokerage to support bitcoin miners, both large and small, in enhancing their operations.
The company’s business development director, Aaron Forster, who joined in October 2021, has witnessed the team’s expansion from around 15 to 85 members within just over three years.
With a decade of experience in the Canadian energy sector prior to his transition to bitcoin mining, Forster will discuss the future of the mining landscape in Canada and the U.S. at the BTC & Mining Summit at Consensus this year.
Stay tuned for comprehensive coverage of Consensus 2025 taking place in Toronto from May 14-16.
Ahead of the event, Forster offered his insights on bitcoin miners’ increasing reliance on artificial intelligence, the evolving complexity of the mining sector, and how Luxor’s offerings help miners mitigate various types of risks.
Please note that the following interview has been condensed and edited for clarity.
Q: Mining pools enable miners to combine their computational power to improve their odds of earning bitcoin block rewards. Could you clarify how Luxor’s mining pools operate?
Aaron Forster: Mining pools essentially function as aggregators that help lessen the variance associated with solo mining. Solo mining resembles a lottery where you might connect your machines and receive block rewards tomorrow or potentially wait a century, all while incurring ongoing energy costs. While this might not pose an issue at a smaller scale, it can become problematic when you begin to scale and build a business around it.
The standard type of mining pool is PPLNS, or Pay-Per-Last-N-Shares. In this model, miners receive payment only when the pool successfully finds a block. This introduces variability due to luck, similar to solo mining’s circumstances, thereby causing revenue volatility for larger industrial miners.
As a solution, we’ve seen the rise of a concept we call Full-Pay-Per-Share, or FPPS, which is what Luxor implements for our bitcoin pool. FPPS ensures that miners receive their revenue based on the number of shares they’ve contributed, regardless of whether or not we find a block. This offers miners consistent revenue, assuming the hash price remains stable. We effectively act as an insurance provider in this context.
However, supporting this model requires a robust balance sheet, as we shoulder the risk despite decreasing the variance for miners. This necessitates strategic planning, but it’s manageable over extended periods. We also collaborate with various partners to mitigate the risks that may arise from our balance sheet alone.
Can you elaborate on your ASIC brokerage business?
We have established ourselves as a prominent hardware supplier in the secondary market, largely within North America, while also reaching over 35 countries worldwide. Our client base ranges from public and private companies to institutions and individual consumers.
Operating primarily as a broker, we connect buyers and sellers, mainly on the secondary market. Occasionally, we engage with ASIC manufacturers and, in certain instances, we might take on principal positions, utilizing our capital to acquire ASICs for resale on the secondary market. However, the bulk of our transactions stem from our brokerage services.
Luxor also introduced the first hashrate futures contracts. Could you tell us more about that initiative?
We are committed to advancing the bitcoin mining industry. We’ve established a hashrate marketplace, and we aimed to bridge hashrate with the traditional financial realm.
Our goal was to develop a tool that enables investors to take positions on hash prices without needing to own mining equipment. Hash price signifies the earnings miners receive on an hourly or daily basis, which can vary greatly. For some, this is a protective measure; for others, it’s about speculative investments. We’re facilitating miners to sell their hashrate forward and leverage it as collateral or a means to fund growth.
Essentially, we enable miners to sell hashrate forward, receive bitcoin upfront, and utilize those funds to meet their operational needs, whether that’s purchasing additional ASICs or scaling their mining operations. This concept is the collateralization of hashrate, obligating them to send a specified amount of hashrate monthly throughout the contract duration while receiving a predetermined amount of bitcoin ahead of time.
There is currently a demand imbalance between buyers and sellers. We have numerous buyers, including individuals and institutions looking to earn yields on their bitcoin. The rate at which you lend your bitcoin effectively becomes your interest rate. Alternatively, you could view it as acquiring that hashrate at a reduced price. This is especially significant for institutions or individuals who desire exposure to hash price or hashrate without engaging directly in bitcoin mining. They can achieve this synthetically by investing bitcoin within our marketplace, effectively lending it out, earning a yield, and obtaining the hashrate at a favorable rate.
What aspects of bitcoin mining excite you most at this moment?
I’m particularly thrilled about the integration of our industry into other markets. We cannot overlook the advancements seen with AI in high-performance computing (HPC). Instead of simply constructing vast mining facilities that focus solely on bitcoin, we now observe significant miners evolving into providers of power infrastructure for AI applications.
Utilizing bitcoin mining as a gateway to enter a larger, more capital-intensive industry like AI is invigorating, fostering greater acceptance as we approach it from a novel perspective. A stellar example is the partnership and deal structure between Core Scientific and CoreWeave, which demonstrates a harmonious merger of both businesses. This is genuinely exciting.
In terms of our product roadmap, we have the necessity to align closely with the evolving demands of bitcoin miners. Many of the products we’ve designed for the mining sector are directly applicable, albeit at a more advanced scale, for AI needs. It’s worth noting that the challenges we face in our industry are considerably simpler compared to those found in AI. We’re still in the nascent stages as we venture into the HPC space.