BitForex has announced that it will continue with its controversial reward model, which is known as transaction mining. The exchange introduced the feature in early August, and according to COO Garrett Jin, the “transaction mining system has been running well” ever since.

Why is transaction mining so controversial, and can BitForex avoid the problems that come with it?

Transaction mining involves BitForex rewarding investors with its native BF tokens when investors trade other cryptocurrencies on the exchange. Allegedly, this is a Ponzi scheme.

The system can easily be gamed: users can simply trade tokens back and forth. This procedure is called “wash trading”. Wash trading and similar activities could be used to “mine” coins without actually creating value for any of the coins involved. BitForex acknowledges this criticism in the press release:

“Some worry about transaction mining saying that the indiscriminate issuing of coins will lead to heavy consequences. Some exchanges actually failed after introducing transaction mining.”

Various other exchanges have also enabled the practice: EXX also offers transaction mining, and this feature produced a troublesome surge in ETH’s trading volume in July.

As such, BitForex is taking steps to make sure that transaction mining is sustainable. The number of BF tokens that miners receive will decrease after three months of transaction mining. Additionally, the service will buy back BF tokens to increase the scarcity of the coin:

“BitForex has decided that 80% of the transaction mining fee will be used to repurchase BF Token back from the market.” [Garrett Jin] added that the BF repurchased will be locked up aimed at securing the scarcity of BF token.”

Suggested Reading : Learn more about alternative mining algorithms here.

Transaction mining may or may not be viable, but it is undoubtedly coming into existence during a time when other mining models are obsolete or uncertain. Proof-of-work mining is increasingly being discarded in favor of various proof-of-stake models—and some, like EOS’s delegated POS, are controversial in their own right.

Nevertheless, it is easy to see how transaction mining could make the wash trading problem worse by directly rewarding it. BitForex will have to make quite an effort if it wants transaction mining to earn the respect of the crypto community.

The post BitForex Doubles Down On Transaction Mining appeared first on UNHASHED.

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