There has been growing concern in the Bitcoin community as to the centralization of the bitcoin mining network and the adverse effect it could have moving forward. Yet, there is reason to believe the Bitcoin hashrate will become more decentralized as technology advances begin to slow.
Bitcoin Hashrate Distribution
The most significant feature of Bitcoin is its decentralized nature, leaving it impervious to censorship and control by large corporations or government entities. Take away this decentralization and there becomes a great fear that the network is prone to a malicious attack or large entities taking over the network.
Currently, the largest bitcoin mining pools have obtained a significant amount of the Bitcoin blockchain hashrate. The network’s four largest mining pools, Antpool, BTC.com, Slushpool, and ViaBTC control more than 53% of the network’s hashrate. This makes for an uncomfortable situation, where collusion between these parties could result in significant negative effects for the network and its users. While it is unlikely this collusion ever occurs, the sheer fact that it is currently possible has left many uneasy about the state of the Bitcoin network.
To Mine or not to Mine
One of the biggest things preventing this decentralization is hardware makers, such as Bitmain (which operates the largest Bitcoin mining pool Antpool), continuing to build their mining power. These companies not only make the ASIC mining equipment used in mining, they operate mining pools themselves to further cash-in on the network.
However, these large companies will only continue to mine as long as it is economically viable for them to do so. Yet, we are reaching a point where it will no longer be more profitable for these companies to mine themselves, and instead, they will turn towards selling their hardware to increase revenues.
In computer science, Moore’s Law states that the overall processing power of computers will double every two years. This has always been thought of as the norm in the industry. Yet, over the past four years with the move from CPU all the way to ASIC hardware, the industry has experienced a 10,000% increase in efficiency year-over-year, making hardware equipment obsolete within two to three months of production. Due to this increase in efficiency, it no longer makes economic sense for chip manufacturers to sell their inventory, as keeping the chips and using them to mine has resulted in larger profits. The result of this has become an increase in large, centralized mining pools and questions surrounding the Bitcoin network’s decentralization.
A Return to Normalcy
As the speed with which microprocessors become obsolete lessens, chip makers will stop using their hardware to mine, and instead, sell it on the open market. The compounding effect of this is it is likely to lower the overall hashing power large mining pools have on the Bitcoin blockchain.
Chip manufacturers will continue to operate with their bottom-line in mind. This, coupled with a return to normalcy in processing speeds more closely resembling Moore’s Law, will result in chip makers selling their hardware instead of using it mine.
The compounding effect of this is large and should result in a more decentralized mining ecosystem across the Bitcoin network. However, mining centralization will certainly be something to watch as user adoption and growth of Bitcoin continue to grow in the years to come.
Dan is a freelance cryptocurrency and blockchain content writer. He has written content for startups, ICOs, financial planners, venture capital firms, and more. Previously he founded an e-commerce company that grew to $1 million in revenue and profitability in less than 3 years. Dan has a degree in Economics and Finance from Bentley University.