Threats to bitcoin (2) — Mining Centralization
Bitcoin is a decentralized digital currency where anyone can be a node and a miner to store the blockchain and determine the transaction records respectively. To be a node, you just need to have 150GB free space on your hard disk to store the blockchain. The price of a hard disk is quite cheap nowadays so it should not be a problem for anyone to be a node. However, being a miner is a completely different story.
Mining is the process of creating a block by computing a very difficult mathematical equation in return for the block reward, i.e. 12.5 bitcoin. According to the current market price, the reward is worth nearly US$ 90,000 which attracts many people to be the miners. Since there is no efficient way to solve the equation, people just use their computers to guess the answer. When there are more miners in the network, the chance for each miner to guess the answer correctly drops if everyone uses the same model of computer. To increase the chance, some miners upgrade their computers by using faster CPU so they can generate more guesses in a shorter period of time. Later on, GPU replaced CPU as a major mining hardware because of the stronger processing power. Top miners have to constantly upgrade their GPUs to maintain the highest chance of winning the guessing game. Some even design their own hardware called ASIC which is only useful for mining bitcoin. Those who fail to upgrade their hardware can no longer solve the equation to create any block. As a result, mining has become a capital-intensive industry which requires a large amount of capital to purchase most advanced hardware. That means not anyone can be a miner. This creates a major threat to bitcoin, i.e. mining centralization.
When a single party controls more than half of the mining power, the bitcoin network is subject to 51% attack because that single party can create the blocks for most of the time. This single miner can reject a valid transaction to be put into the block which creates the censorship in transaction processing. The miner can even alter the record of the previous block by recalculating the difficult mathematical equation which can make someone lose their bitcoin.
Is there any solution? Many people have proposed different mining algorithms to prevent ASIC-mining. Some cryptocurrencies like Litecoin have adopted new algorithms but it will take some time before the bitcoin community can reach a consensus on choosing the most appropriate mining algorithm.