Cobo Shenyu’s Insights on BTC Mining, BTC L2, and AI

Forward the Original Title ‘神鱼：回顾挖矿往事、BTC L2生态布局及对AI趋势研判’

Reposted original title: Interview with Cobo’s Founder Shenyu: Review of mining past, BTC L2 ecosystem layout and AI trend

During the 2024 Hong Kong Web3 Carnival, Cobo and Antalpha Prime, together with BounceBit, SYS Labs, and Rollux, held the “BTC Old Friends Reunion” offline event in Hong Kong on April 7 with the support of Tether Gold. Seasoned Bitcoin miners and new BTC Layer2 players gathered together to discuss the prosperous years of Bitcoin miners in the early years and look forward to the future of the BTC ecosystem.

During the dinner, Cobo co-founder and CEO ‘Shenyu（CoBo）’ shared with the guests the interesting restructuring of early Bitcoin miners, took stock of the various problems miners encountered when going overseas, and shared his views on BTC Layer 2 and AI as well as Cobo’s layout in them.

We have compiled the content shared by Shenyu and shared it here with Cobo users and partners.

An old miner’s self-introduction

Hello everyone, I am Shenyu, an old miner, a long-term investor, an NFT collector, and a victim of on-chain inscriptions. Over the past ten years, I have witnessed the ups and downs of the industry, from the earliest days of GPU mining, the birth of ASIC, the first mining pool in China, the first Bitcoin halving, to Mt. Gox… Along the way, in 2017, Ethereum’s ICO brought about smart contracts and new asset issuance methods. In the last cycle, we experienced the DeFi Summer and the explosion of NFTs. A year ago, we witnessed a boom in the Bitcoin ecosystem, where many inscriptions emerged from the bottom up, including the various layers and side chains of Bitcoin that have been very hot in recent months.

Over the past decade, we have witnessed the entire Crypto journey from scratch. It is a great fortune that in 2024, Bitcoin has reached an early inflection point. The launch of Bitcoin ETFs in January 2024 marks the official debut of Bitcoin as a mature financial asset to the public.

Standing today in 2024, at this moment we can clearly see the infinite possibilities of the future of blockchain. The core issues that have troubled us for a long time in the blockchain industry have basically become clear today. What we have to face next is the final big wave of growth in the entire industry, making blockchain truly popular and even allowing end users to be indifferent. It is believed that the convenience and security brought by blockchain technology can be realized on a large scale in the next one or two cycles.

Opportunities for institutionalized and professional mining and stories from the past mining

One of the most fascinating aspects of this industry is that it is driven by the power of cycles, a continuous process of iteration and learning from mistakes. The story of institutionalized mining began in the bear market of late 2014 and early 2015. At that time, the price of BTC plummeted, and ASICs were already gaining traction, causing profit margins to drop dramatically. The initial payback period for Bitcoin mining was 3-6 months, but it later became a year or even two years. In a rapidly declining bear market with the price of BTC stuck at the bottom, miners had to optimize their electricity costs and move towards corporate-scale mining. Otherwise, their marginal profits would become extremely low, and their risk resistance would be severely impaired. This market situation forced miners to relocate from their initially well-equipped mining farms.

I know it might sound unbelievable, but the first large-scale mining farm I owned was located in downtown Nanjing, just two kilometers from Wanda Plaza. The conditions were excellent, with IDC central air conditioning. Those mining machines were incredibly valuable, and we mined over 20,000 Bitcoins and over 100,000 Ether in that mining farm. However, when the bear market hit, mining became impossible due to the exorbitant electricity costs. Despite the excellent conditions, comfortable living quarters, and well-maintained mining facilities, we had no choice but to relocate the mining machines to a location with competitive electricity costs.

At that time, these miners traveled across China, carrying provincial power grid maps, searching for places with surplus electricity. They drove along the Dadu River in mudslide conditions, visiting hydropower stations one by one, negotiating, and building mining farms.

During that period, the global cryptocurrency mining industry witnessed a trend towards scale and centralization. At that time, perhaps 70-80% of the world’s mining power was concentrated along the Dadu River and near the pithead power stations in Xinjiang during the winter. However, the electricity consumption was not that high. The root cause of this large-scale development was the prolonged bear market, which forced everyone to optimize costs and improve efficiency.

Challenges and hurdles faced by miners venturing overseas

Initially, there was a lot of enthusiasm for overseas mining, with everyone eager to make a big splash. However, upon arriving in the United States, they quickly discovered that there were numerous pitfalls: from the early stages of legal frameworks and tax planning to later issues with mining facility maintenance, repair efficiency, and uptime. Additionally, there were various factors that could significantly impact costs, such as electricity instability and the need to shut down during special events. After careful consideration, many miners realized that the overall costs and efficiency were far from ideal in the United States. As a result, they began to explore other potential markets, narrowing down the options to South America and Africa. However, these regions presented challenges of a different nature, namely political instability and security concerns. In comparison, miners began to appreciate the efficiency of China’s infrastructure and relatively stable environment, where such issues were less prevalent.

Another significant challenge faced by miners venturing overseas is the presence of new players with substantial resources, particularly strong political connections. Sovereign wealth funds from various countries have entered the mining space, often disregarding the payback period, leading to a significant decrease in profit margins for other miners.

Overall, the journey of overseas mining has been a challenging one for many miners. Those who have managed to establish and maintain stable operations are relatively few and far between.

BTC Layer 2 projects and Cobo’s BTC ecosystem layout

In recent years, Bitcoin has seen a flourishing ecosystem, with new asset types and issues emerging from the bottom up. As Bitcoin’s ecosystem evolved, the main Bitcoin network became congested for a long period, leading to overflow of these demands. This prompted exploration into side chains and second-layer network solutions, coupled with modular blockchain technology developments on the EVM side over the years. Due to these mature technologies, we’ve recently seen a batch of projects and entrepreneurial directions attempting to build second-layer networks on top of the Bitcoin ecosystem.

In this process, the biggest difference between Bitcoin and EVM is that Bitcoin’s support for smart contracts is relatively limited. To rapidly address this issue in the short term, bridges are used to map Bitcoin assets to second-layer networks and EVM in certain ways. But how do we ensure asset security and a relative degree of decentralization for these bridges? Short term solutions are mostly compromises.

Cobo offers a solution based on MPC (Multi-Party Computation), similar to multi-signature. In this solution, project parties hold a shard of the private key, Cobo as a co-manager also holds a shard, and a third shard is backed up by a third-party security company or insurance company chosen by the project party. This solution can effectively avoid single-point failure risks and can also enhance the security of the entire bridge’s funds by allowing collaboration between multiple entities. In this process, Cobo can only assist with risk control specified by the project party and cannot determine the destination of the funds.

We’ve also seen some new technological solutions, including updates and iterations at the Bitcoin Opcode level and some cross-chain communication solutions. In the long run, I believe this issue will gradually improve and be resolved, so in this process, we strive to provide a relatively safe and reliable solution at an early stage to ensure that we have some opportunities for trial and error in this ecosystem, allowing us to observe its further development.

Cobo’s AI layout

The development of AI has brought about significant changes at the individual level. Many of our workflows and information streams can be managed through AI, which can alleviate about 40-50% of our daily work pressure, greatly improving efficiency. Another dimension is that as a company, we have been constantly thinking about AI, especially after the accuracy rate of AI Agents significantly improved, whether it can be integrated with the blockchain industry. From a current perspective, because the native information flow and asset flow of the blockchain are all openly transparent on the chain, if AI Agents have a high accuracy rate and efficiency in the future, they should interact with the blockchain.

We can imagine a scenario: for example, two AI Bots represent two different individual entities, they can deploy corresponding smart contracts on the chain, and the two AI Bots can interact and trade with each other. We envisage a scenario where, after the blockchain solves performance issues, the cost on the chain will be greatly reduced, and the final state may have a large number of AI Agents initiating and using transactions directly on the chain, including smart contract technology. Humans may only provide these AI Agents with some simple risk control, set some rules for them, and let them execute in a certain way and method. It is expected that in the next three to five years, we may see some relatively mature prototypes.

Based on this vision, Cobo, a company that focuses on the secure management of the underlying private keys of wallets and uses good risk control, we are working hard to unify the underlying layers of our various wallet product lines and the risk control layer, and provide a standard API to access the ability of AI Agents. We hope to see the large-scale layout and application of AI technology in the blockchain field in the future.

It is expected that the prototype of this product will be available in the second half of this year, and everyone is welcome to try it at that time.

Disclaimer：

1. This article is reprinted from [Panewslab]. Forward the Original Title ‘神鱼：回顾挖矿往事、BTC L2生态布局及对AI趋势研判’. All copyrights belong to the original author [Cobo]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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