This presentation introduces the basic concepts around Bitcoin and the main Cryptocurrencies, focusing on the opportunity of mining for small/medium sized producers of hydroelectric power.

1. H Y D R O M I N I N G
E X P L O I T T H E E N E R G E T I C P O T E N T I A L
Michele Mostarda michele.mostarda@inbitcoin.it
Marco Amadori marco.amadori@inbitcoin.it
v1.3enInBitcoin - http://inbitcoin.it

2. O U T L I N E
• What is Bitcoin
• Wallets
• Altcoins
• Exchanges and volatility
• Cryptocurrency Mining
• Hydro Mining
• Business model based on Mining
• Q1 2016 Analysis and global
initiatives
• Useful links

3. W H AT I S B I T C O I N
• Decentralized (no central authority, no single point of failure).
• Pseudo anonymous.
• Completely transparent.
• Semi realtime transactions.
• Enable intelligent money applications.
T H E FA T H E R O F C RY P T O C U R R E N C I E S
The Bitcoin is a digital currency enforced with cryptographic
techniques (and so called Cryptocurrency), which is
electronically generated, hold and exchanged.
Anybody controls it, it can be generated by everybody using
software which solve mathematical problems.

4. B I T C O I N N E T W O R K
T H E B A S I C E L E M E N T S
Full node
with mining capabilities
Full node
with mining capabilities
Full node
Full node
with mining capabilities
Full node
Wallet
Wallet
Transaction
See the entire network at https://bitnodes.21.co/

5. B I T C O I N PAY M E N T S
H I S T O RY O F A T R A N S A C T I O N

6. • App Wallet: mobile device / desktop app for
wallet management. Ex: Mycelium.
H O W T O M A N A G E Y O U R C O I N S
• HW Wallet: custom HW device for
wallet management. Ex: Trezor.
WA L L E T S
• Web Wallet: online wallet management
(usually with no control on keys). Ex:
Coinbase

7. A LT C O I N S
W H A T C RY P T O C U R R E N C I E S R E P R E S E N T F O R T H E F U T U R E O F T H E
E C O N O M Y O F S C A L E ?
Altcoins are alternative cryptocurrencies originated after the
Bitcoin success. Usually they offer extensions to the Bitcoin
functionalities, emphasizing the improvement of some
specific aspects of the latter.

8. A LT C O I N S
M A R K E T C A P I TA L I Z A T I O N
https://coinmarketcap.com - Q1 2016

9. E X C H A N G E S ( 1 / 2 )
H O W T O C O N V E R T C RY P T O C U R R E N C I E S
• Exchange: web
app for
cryptocurrency/
EURO/USD trade:
Bitstamp, Kraken.
• Direct Trade: web
app to F2F coin
exchange:
LocalBitcoins.

10. E X C H A N G E S ( 2 / 2 )
F L U C T U AT I O N O F B I T C O I N VA L U E S I N C E 2 0 1 0
H O W T O C O N V E R T C RY P T O C U R R E N C I E S
• Current value (Q4 2016):
~ $640
• Reached spike of ~$1000
in Christmas 2013

11. B I T C O I N V O L AT I L I T Y
W H A T M A D E T H E B I T C O I N VA L U E V O L A T I L E
http://cointelegraph.com/news/bitcoin-growth-in-2016-show-us-your-numbers

12. C RY P T O C U R R E N C Y M I N I N G ( 1 / 4 )
W H A T U P H O L D T H E B I T C O I N N E T W O R K ? W H A T I S M I N I N G ?
W H A T I S A P O O L ?
In traditional currencies governments (via central banks) print money.
In virtual currencies there have been introduced mechanisms where
nodes sustaining the transactions network receive rewards.
The first reward type is block discovery. Block discovery is time limited
and has been designed to promote the network bootstrap.
The second reward type are transaction fees. These will fully replace
block discovery in the long term.

13. C RY P T O C U R R E N C Y M I N I N G ( 2 / 4 )
W H A T U P H O L D T H E B I T C O I N N E T W O R K ? W H A T I S M I N I N G ?
W H A T I S A P O O L ?
The distributed transaction list on which Bitcoin relies to exist is
periodically revalidated (every ~10min) to avoid malicious operations.
This revalidation foreseen the search of a solution for a cryptographic
problem based on the current status of the network.

14. C RY P T O C U R R E N C Y M I N I N G ( 3 / 4 )
W H A T U P H O L D T H E B I T C O I N N E T W O R K ? W H A T I S M I N I N G ?
W H A T I S A P O O L ?
The Bitcoin network node with solves first the
validation problem is rewarded with the creation of
new money.
Such operation of continuos implementation of safety
is called Mining and it is performed by dedicated
energy-intensive HW called Miner.

15. C RY P T O C U R R E N C Y M I N I N G ( 4 / 4 )
W H A T U P H O L D T H E B I T C O I N N E T W O R K ? W H A T I S M I N I N G ?
W H A T I S A P O O L ?

16. M I N I N G T Y P E S
D I F F E R E N T A P P R O A C H E S T O D I F F E R E N T P R O B L E M S
Different cryptocurrencies can be mined applying different algorithms which require
different HW performances.
Some performances can be satisfied by a CPU, other by a GPU (CPU resistant), other
only by dedicated HW (GPU resistant).
Dedicated HW implement only a certain type of algorithm.
A miner with dedicated HW can mine only cryptocurrencies compatible with its own
HW.
C RY P T O C U R R E N C Y E N C RY P T I O N F U N C T I O N
B I T C O I N S H A 2 5 6 ( D E D I C AT E D H W )
E T H E R E U M E T H A S H ( G P U )
N A M E C O I N S H A 2 5 6 ( D E D I C AT E D H W )
L I T E C O I N S C RY P T ( D E D I C AT E D H W )
D O G E C O I N S C RY P T ( D E D I C AT E D H W )
R I P P L E E C D S A ( C P U )
C RY P T O C U R R E N C Y M I N I N G B Y H W T Y P E

17. M I N I N G P O O L
J O I N I N T O A C O N S O R T I U M T O I N C R E A S E P R O F I T
A Mining Pool is a virtual consortium of Miners which
coordinate their workload on the basis of their
computational power distributing also profit.
• Plug&play: it is possible to join a pool in few
seconds
• Guaranteed return on the provided computational
power

18. M U LT I P O O L
D I V E R S I F Y T O S P R E A D R I S K
A Multi Pool is a Mining Pool with performs mining on different Crypto-
Currencies. The Multi Pool periodically determine profitability of a set of
supported Cryptocurrencies and coordinates a redistribution of computational
power to maximize profit and minimize risk.
• Plug&play: it is possible to join a Multi Pool in few
seconds
• Guaranteed return on the basis of Multi Pool policy and
provided computational power
• Return is optimized extracting different Crypto-Currencies
• Multi pools support only a certain mining algorithm

19. S O F T / H A R D F O R K S
H O W C RY P T O C U R R E N C I E S E V O LV E
Bitcoin and other cryptocurrencies are subject to evolution. This evolution aim
the improvement or fix of certain issues and also the addition of new
functionalities to enable new applications. There are two types of changes to a
cryptocurrency protocol, one that is backward compatible and one that isn’t.
• Soft fork: restrict block acceptance rules. Forward compatible.
• Hard fork: expand block acceptance rules. No forward compatible.
Old transactionsNew Transactions New transactionsOld Transactions

20. W H Y H Y D R O M I N I N G
E N A B L E E N E R G Y P R O D U C E R S T O B E C O M E F I N A N C I A L P L A Y E R S
Mining allows energy producers to position in
the market spaces currently occupied by
ordinary financial institutions.
Hydro mining (mining from hydroelectric
power) is the big challenge for producers in
Alpine Europe.

21. W H Y H Y D R O M I N I N G
E N A B L E E N E R G Y P R O D U C E R S T O B E C O M E F I N A N C I A L P L A Y E R S
• Renewable energy with low production cost.
• Production available 24h.
• Discontinuous value (related to the
compensation of power production with other
thermal energy that cannot be modulated).

22. H Y D R O M I N I N G ( 1 / 3 )
T H E C R I S I S O F I N D U S T R I A L C O N S U M P T I O N A S A N O P P O R T U N I T Y
F O R D I V E R S I F I C A T I O N
Mining is an activity relying on dedicated parallel
processing hardware which differ from standard
processing hardware in power requirements (x5 in respect
of a normal server) and low Internet connection band.
Energy prices correctly applied in traditional data centers
are therefore not affordable.

23. Mining is suitable to the absorption of energy
overproduction because it can be activated on
demand and provides a guaranteed conversion
between
electric power ⬄ computational power ⬄ gain
H Y D R O M I N I N G ( 2 / 3 )
T H E C R I S I S O F I N D U S T R I A L C O N S U M P T I O N A S A N O P P O R T U N I T Y
F O R D I V E R S I F I C A T I O N

24. Miners can be directly installed in plant
environments exploiting the large volumes to then be
operated completely by remote.
H Y D R O M I N I N G ( 3 / 3 )
T H E C R I S I S O F I N D U S T R I A L C O N S U M P T I O N A S A N O P P O R T U N I T Y
F O R D I V E R S I F I C A T I O N

25. P R O F I TA B I L I T Y M O D E L
B U S I N E S S M O D E L R E L A T E D T O C RY P T O C U R R E N C Y M I N I N G
Coin Price
(Exchange cost of currency )
Energy Cost
Cost of electric power
Difficulty
Index of difficulty imposed by the network in the search for a solution
HW Cost
Dedicated HW cost
Mining become very lucrative for those who control the
energy cost and/or the HW cost

26. P R O J E C T I O N S
P R O J E C T E D G A I N I N 2 4 M O N T H S I N B I T C O I N M I N I N G
Mining farm of 280TH/s (€48k) x 24months projection gain
Value conversion chain: (at day 0):
14THs x 24h ≈ 1.3KWh x 24h ≈ 0.015BTC/24h ≈ €20/24h ≈ €0.64/KWh
HW Cost: 14THs ≈ €2400
Available online: https://goo.gl/kvyq9T

27. D I F F I C U LT Y
D I F F I C U LT Y G R O W T
Difficulty trend from
November 2014 to
October 2016
Difficulty growth rate from November
2015 to October 2016

28. D I M E N S I O N I N G
D I M E N S I O N I N G E X A M P L E O F A M I N I N G FA R M
Depending on the availability of energy,
dimensioning starts from a minimum of 140KW/h,
which corresponds to an occupancy of 15sqm, to
be housed in an environment with a volume or
cooling system compatible to the disposal of the
heat produced (140KW/h). The model scales
linearly with an initial yield of about 0.58EUR/KWh
gross. 1MW installation occupies 110sqm at the
same efficiency.

29. T E C H N I C A L I S S U E S
T E C H N I C A L I S S U E S R E L A T E D T O M I N I N G A C T I V I T I E S I N E N E R G Y
P R O D U C T I O N S I T E S
• Distribution of energy (surplus) production along the
24h.
• Voltages and wattages available and dissipable in site.
• Problems of heat disposal.
• Problems of electromagnetic interference.

30. M I N I N G VA R I A N T S
M I N I N G V S H O S T I N G V S H O U S I N G
• Mining: profit is derived directly from the operations of
mining (+ risk, - operating expenses, 0 marketing).
• Housing: profit is derived from third-party hosting miner
and charging the electricity consumed (- risk, + operating
expenses, + marketing).
• Hosting: profit share is derived by renting computational
power (- risk, ++ operating expenses, ++marketing).

31. N E X T F U T U R E A P P L I C AT I O N S F O R M I N I N G I N
I N D U S T RY
A LT E R N A T I V E S C E N A R I O S : C O M B I N E M I N I N G W I T H I N D U S T R I A L
P R O C E S S E S
A miner is a machine that consumes electricity and produces heat
(other than digital money).
It is possible to speculate on scenarios where industry is currently
using large amount of heated air (greenhouses, drying plants)
produced with electricity. Costs of production would be dampen by
mining revenue.
It also plausible to imagine the replacement of cheaper non-
renewable energy sources for air heating with electricity based
“mining heaters” which compensate their higher supply costs
through the generation of digital money and green certificates.

32. P O L I T I C A L VA L U E O F M I N I N G
I M P L I C A T I O N O F M I N I N G I N P O L I T I C A L P E R S P E C T I V E
• Mining means possibility to apply weight in cryptocurrency
regulation via the sponsorship or opposition to a certain soft/
hard fork.
• A tax authority could implement an institutional mining pool
and claim mining power as provision of tax services.
• Mining power means possibility to apply different priorities on
transactions based on taxation criteria.
• Implement a set of fiscal tracking and enforcing.
• Realize digital consensus services.

33. C RY P T O C U R R E N C Y S TAT U S I N Q 1 2 0 1 6
I N I T I A T I V E S R E L A T E D T O T H E S P R E A D O F C RY P T O C U R R E N C I E S
Source: http://www.coindesk.com/state-of-blockchain-q1-2016/

34. G L O S S A RY
U S E G U L T E R M S
• Bitcoin: the first cryptocurrency, proposed by Satoshi Nakamoto.
• Blockchain: open and distributed infrastructure which persists the public list of
Bitcoin transactions.
• Altcoin: alternative cryptocurrency.
• Fiat Currency: traditional currency.
• Mining: activity to secure the Blockchain that leads to the generation of new
money.
• Miner: parallel hardware machine dedicated to cryptocurrency mining.
• Difficulty: auto-adaptive difficulty index which imposes the minimal length of a
solution sought by miners for the safety of the Blockchain.
• Exchange: service for cryptocurrency / fiat currency exchange.
• Pool: service for the coordination of mining activities in order to have a
guaranteed gain based only on the available computational power.
• Multi Pool: pool dedicated to the mining of multiple crypto-currencies.
• SHA256: cryptographic function securing operations in the Blockchain.
• Scrypt: cryptographic function securing operations in several Altcoins.

35. U S E F U L L I N K S
T O T H E U N D E R S TA N D I N G O F C RY P T O C U R R E N C I E S
• Bitcoin introductory video: https://www.youtube.com/watch?
v=Gc2en3nHxA4
• The Bitcoin vision: https://www.youtube.com/watch?v=YIVAluSL9SU
• The .org coordinating development and adoption of Bitcoin: https://
bitcoin.org/
• Main news site about cryptocurrency: http://www.coindesk.com/
information/
• Original paper describing the Bitcoin architecture: https://bitcoin.org/
bitcoin.pdf