Seasonal Tokens and Proof-of-Work Mining
Like Bitcoin, the four Seasonal Tokens — Spring, Summer, Autumn and Winter — are produced by proof-of-work mining. This is an important part of the token economics, giving the tokens a real cost of production that dynamically adjusts to market conditions.
However, there are important differences between token mining and mining of coins such as Bitcoin, Litecoin, and Ethereum Classic. Here, we’ll have a look at the differences and similarities.
Blockchain Security
The biggest difference between Bitcoin mining and mining of the tokens is that Bitcoin miners play three important roles:
- Creating new coins,
- Choosing which transactions to include in each new block, and
- Securing the blockchain.
Bitcoin miners are connected to each other through a peer-to-peer network, allowing each miner to be notified when a new block is mined, so they they can add it to the blockchain and begin work on the next block.
When a blockchain is secured by proof-of-work, it is vulnerable to a 51% attack — a malicious miner with a majority of the mining power can rewind the blockchain, reversing recent transactions and taking back coins that they’ve spent.
With Seasonal Tokens, the Ethereum blockchain provides the security and orders the transactions. As a proof-of-stake chain, Ethereum is secure against 51% attacks. Tokens on Ethereum don’t need their own blockchains, peer-to-peer networks or to handle transaction processing.
Miners create new Seasonal Tokens, but they play no role in securing the blockchain or ordering transactions. By using the Ethereum chain to provide security, the tokens are highly secure against attacks, require very little supporting infrastructure, are compatible with existing wallet software, and can be traded permissionlessly on decentralized exchanges.
Economics
It costs energy to mine new Seasonal Tokens, and this gives them a cost of production. Most tokens are created in large numbers at zero cost, and given to the developers and early project supporters. When it costs nothing to produce a token, it has a natural market price of zero. Various smoke-and-mirror tricks, such as staking and vesting, are necessary to keep those tokens off the market and keep the prices away from zero.
With mined tokens, by contrast, the natural market price is equal to the cost of production, which gives Seasonal Tokens prices that naturally stay away from zero, without the need for staking or vesting.
Proof-of-work mining also ensures that every investor is on an equal footing. The founders of the project need to buy and mine tokens to acquire them, just like everyone else. They also can’t create large numbers of tokens at the start of the project, but can only acquire them over time after they’ve been mined.
Halvings
After a Bitcoin halving, many miners go bankrupt, or at least need to stop mining. This is because, when the halving occurs, the cost of production doubles, but the price doesn’t double instantly, making mining unprofitable.
With Seasonal Tokens, miners don’t go bankrupt after a halving. Instead, they just switch to one of the other three tokens. After the Spring halving in June 2022, it became unprofitable to mine Spring, and Spring miners switched to mining Summer, Autumn or Winter during the period when Spring could only be mined at a loss.
Rather than being a disaster for miners, the Spring halving was an opportunity for investors. The price was still low because there was a glut of cheap Spring tokens on the market, left over from the previous era, when Spring was plentiful. The market hadn’t yet adjusted to the new rate of production, and the prices didn’t reflect the new scarcity of Spring.
Investors traded other tokens for Spring, to gain more tokens in total, and by doing so, they pushed up the price of Spring and made it profitable to mine Spring tokens once again.
By trading tokens for more tokens, the investors provided a valuable service to miners, taking the cheap tokens off the market, and allowing the prices to reflect the cost of production once again. Far from getting something for nothing, investors who acquire more tokens over time earn the tokens they acquire, by providing a valuable service to miners, and getting a share of the newly-mined tokens in return.
Environmental and Economic Impacts of Proof-of-Work Mining
In recent years, there has been concern about the effects of proof-of-work mining on the environment and the economy. Bitcoin mining consumes large amounts of electricity, comparable to the energy consumption of some small countries. In addition to providing extra demand for electricity, and pushing up energy prices, the emissions caused by such large energy usage raise environmental concerns.
Rather than ban proof-of-work mining altogether, regulators have taken a more cautious approach. In many jurisdictions, Bitcoin mining must be done using renewable energy sources. In the EU, the Markets in Crypto-Assets Regulation (MiCA), requires new proof-of-work cryptocurrency projects to declare their approach to the environmental and economic impacts of the energy consumption.
Seasonal Tokens, in accordance with the regulation has adopted such a strategy. The algorithm used to mine the tokens — Keccak — is easy to implement using ASICs (application-specific integrated circuits). These are specialized mining hardware which are much more energy-efficient than consumer hardware such as graphics cards, reducing the amount of energy needed to produce new tokens.
In addition, while Bitcoin needs to have so much mining power that nobody can ever conceivably launch a 51% attack, there is no connection between mining power and network security in the case of Seasonal Tokens. This means that the tokens are perfectly secure even when mining consumes very little energy.
Finally, mining performed on ASICs has a tendency to become centralized in large mining facilities over time, whereas mining on graphics cards tends to remain dispersed among large numbers of individuals using consumer hardware.
Centralized mining facilities can be regulated to ensure that they comply with emissions requirements, that they use renewable energy, or satisfy whatever regulations are imposed. This makes ASIC-friendly mining more regulation-friendly than ASIC-resistant algorithms.
Conclusion
The way in which Seasonal Tokens are mined provides significant advantages over traditional proof-of-work mining, including better security, lower energy consumption, and a more resilient mining economy in which halvings provide opportunities for investors rather than disadvantages for miners.
To get started mining Seasonal Tokens, check out the mining page on the website at https://seasonaltokens.org/mining.
