Bitcoin: Not all Miners Are Equal
Bitcoin is admired by supporters and admonished by the skeptics, due to its limited supply. There are just 21 million bitcoins that can be mined, irrespective of the population on earth and its demand. Once these 21 million bitcoins are mined, no more bitcoin will be there, unless there is a change happened in the protocol made to increase bitcoin supply. In this context, the article highlights how all bitcoin miners are not same, by demonstrating the disparity of the value miners bring to the bitcoin network. The bitcoin pool concentration in China, posing negative impacts and bringing challenges to the bitcoin network and leading to the risks involved in bitcoin consensus protocol, is also the subject of the article.
The Bitcoin Miners
At present, the total number of bitcoinners has been estimated around 5,000. However, this figure is based upon the full number of nodes seen on the blockchain data maps.
What is mistaken here lies in taking a full node as a miner. A node is any computer connected to the bitcoin network. Full nodes are those running the original Bitcoin Core Wallet, or executing the bitcoin protocol, forming the network infrastructure. Full nodes support the network by conducting transactions and blocks from other full nodes, verifying them and relaying to full nodes ahead. It means that a figure of 5,000 definitely contains the number not mined at all.
Another mistake is that many of the mainstream mining pools are confused with P2P pools, necessitating the users to download their own blockchain copy and the correlation dwindles. Pools usually host full nodes on the behalf of their miners, thus, millions of miners could use the same full node at a time. These two mistakes lead to complex-to-make counting of bitcoin miners.
The Miners’ Count
The credit to identify and rectify these situations, goes to Andrew Geyl, an Australian bitcoin miner who has been running a blog Neighborhood Pool Watch since 2012. The most recent data issued by his statistical analysis reveals that the number of miners is far more than 5000, even as high as100,000.
Who are the Bitcoin Miners?
Recent startups like Circle, BitPay, Blockchain and Coinbase are some of the most popular bitcoin businesses. However, the key miners are individuals and companies that form the backbone of bitcoin and guarantee the integrity of digital currency. Some investors mine bitcoin individually, while others become a part of open pools where their resources can be combined for improving their odds. Some of the big entities also do mining.
The Bitcoin Mining Pool
The bitcoin mining pools are the platforms for the miners where they can pool their resources and share the hashing power while dividing the reward in an equal manner in accordance to the proportion of shares they contributed. In other words, mining pools consist of groups of miners where they get block reward as per their contributed mining hashing power.
The Disparity Created by Mining Pools
Though mining pools are lucrative opportunity for the miners since they get rewards there in a more predictable way, yet on the other hand, these pools create disparity in the market by concentrating the power in the hands of few mining pool owners.
The best example to support this fact is the case of China, to which majority of the mining pools belong. In fact, a lot of these pools possess only Chinese website and support. The increasing mining centralization or concentration in China seems to impose various risks for the bitcoin network.
Taking into consideration the 20 mainstream mining pools, the percentage of hash power controlled by them and the location of their parent companies, it has been estimated that Chinese pools control over 81 percent of network hashrate.
China, at present, mines most of the bitcoins, hence, their bitcoin export is also the highest. Due to cheaper electricity in China, Chinese bitcoin miners are able to mine such a high percentage of bitcoin’s hash power. Some rumors have also been around since a couple of months that Chinese power generation businesses invest their excess energy into Bitcoin mining so as so to ensure zero wastage of energy. Some of the world’s top bitcoin mining companies including BTCC, AntPool and F2Pool, belong to China., and have captured around 60 percent of bitcoin hash power. It implies that they have mined 60 percent of all new bitcoins.
The Risks in Network Consensus
The concentration of bitcoin miners in the Chinese markets creates disparity in terms of the influence miners make in the market and the reviews they provide. Big pools are the kingmakers of Bitcoin world. Running pools give the voting right for the changes in Bitcoin’s software. The bigger the mining pool, the more the voting power is. Members not agreed to the decision can switch to another. However, most of the miners select the pool on the basis of its payout policies, not bitcoin politics.
Emin Gun Sirer, a professor at Cornell and a Bitcoin researcher, states that the concentration in a single jurisdiction (Chine) doesn’t work well and decentralization must remain meaningful.
China’s clout has been raising worries regarding independence and decentralization of bitcoin, which was supposed to offer a technology freedom from the government interventions and crackdowns, something common in Chinese financial market.
The power got by Chinese companies has already played a primary role in the civil war that divided the bitcoin followers last year and resulted in the departure of some top developers of the digital currency. This conflict has hinged on the technical issues and on bigger questions regarding what bitcoin should look like in next 10 years and onwards.
© Copyright 2017 Bryant Nielson, The Blockchain Academy
Bryant Nielson — Founder of The Blockchain Academy Inc..– Being a big believer in Technology Enabled Learning, Bryant seeks to create awareness, motivate adoption and engage organizations and people in the changing business of education.
Learn more about Bryant at LinkedIn: www.linkedin.com/in/bryantnielson