At @zooko’s request, I’m sharing my experience GPU mining Zcash and some thoughts. Hopefully, it will be another useful anecdote in this debate.
In 2016, I was hired by a cryptocurrency trading firm to build a Zcash GPU mining operation. Before the build we created financial models for the operation under a broad number of scenarios. One key assumption shared by all of our scenarios is that the Zcash company/foundation had committed to keep GPU mining competitive, and thus we assumed the GPU hardware would last approximately 2 years until future GPU generations made it obsolete. Most of our scenarios had break-even for the operation around the one-year mark.
Our buildout started in late spring-early Summer 2017 and was completed after a few weeks. Our mining operation was not incredibly large but did have thousands of GPUs. Because of the rapid increase in prices from Summer 2017 through the end of the year, the mining operation made money considerably faster than expected. Excluding labor at the trading firm (including my own) on the project, we probably reached “payback” on the investment in the equipment around January. After January, the decline in prices and the continued growth in difficulty rapidly degraded profitability. We considered expanding the operation in Winter and Spring 2018, but decided against it, for reasons including: a.) we weren’t convinced that there was a real commitment to ASIC resistance by the Zcash company/foundation, b.) we were concerned about the bear market in prices, and c.) we were concerned about the ever-increasing difficulty. By June 2018, the operation was no longer profitable, about a year after launching.
With that experience in mind, I would like to offer some thoughts on the future of Zcash mining.
A key assumption we made when deciding to invest in mining was that the Zcash company/foundation had committed to keep GPU mining competitive. I think this was a reasonable assumption to make given the actions and statements of commitment by Zooko/the Zcash developers. For example, in addition to discussing their commitment to ASIC resistance, the Zcash company chose the Equihash proof-of-work, and discussed ways to maintain ASIC resistance, including changing the Equihash parameters, switching to other forms of proof-of-work, etc. For better or worse, by failing to act in the face of the development of ASICs, the Zcash company failed to live up to its commitment to ASIC resistance.
At this point, I believe that the Zcash company/Foundation have effectively accepted ASIC miners. At ZCon0, I attended the mining breakout session led by Zooko. My takeaway from that session is that the Zcash company, either by lack of resources, it’s development cycle, lack of concern, etc., will not be making any POW changes well into 2019. I believe that many miners have invested in ASIC miners due to the inaction by the ZCash company. For that reason, I would recommend that the Zcash company, whatever it decides to do going forward, should commit to making no changes until the current generation of ASICs have come close to the expected end-of-life. If the Zcash company is comfortable with the state of things such that it doesn’t feel the need to make emergency changes to the protocol, then I think it should avoid upsetting the expections of the latest generation of ASIC miners.
One further thought: Part of the reason I think that the Zcash company failed to aggressively counteract the rise of ASICs is that the loss of decentralization that was expected turned out to be less problematic than thought around Zcash’s launch. Accordingly, the Zcash company focused on its strengths and worked to get Sapling done. I would recommend that Zcash maintain that focus. At ZCon0, Zooko discussed Zcash adopting proof-of-stake or possible other exotic consensus mechanisms. Zcash should stick to core competencies and avoid working on POS, etc., unless the security of the network is threatened, or adoption by other cryptocurrencies has ironed out all the issues.