Mining Centralization Scenario: why Decentralization it’s fundamental

Bitcoin is decentralized. It means that there isn’t a subject that governs it, manages it, or use it as it would like, for example by modifying the protocol.

In fact, the beauty of Bitcoin is that it is designed not to have a leader, not to have a hierarchy, not to have a command or control centre. Anyway this doesn’t mean that power is equally distributed among all those taking part in the P2P network on which it is based.

In fact, the problem is that the computing power to mine blocks is in a few subjects’ hands. In particular, looking at the bitcoin mining hashrate distribution graphic, it is clear that even a quarter of the same (23.9%) is in the hands of a single BTC.com while the second pool in order of importance is Antpool (15.5%).

Both, BTC.com and Antpool, are owned by Bitmain, which controls almost 40% of the global computing power used to mine bitcoins. In addition, Bitmain is also the largest mining hardware producer in the world: in short, it has a decidedly predominant role in this sector.

Furthermore, the problem doesn’t concern only Bitcoin, but many other cryptocurrencies. For example, strong doubts about the poor decentralization of Bitcoin Cash, or Ethereum, are known, and also Litecoin suffers similar problems.

But what are the real risks associated with poor decentralization?

The main problem is the relation with the power of control: since blockchain needs to validate blocks, more power the individual miners acquire and more they can decide which blocks to mine, or which transactions to accept, when to mine them and how to do it. Thus, a truly decentralized cryptocurrency is only one in which the mining power the is distributed and not concentrated.

In this regard, many cryptocurrencies are trying to minimize the competitiveness of mining through ASIC, the possibility that those who have large amounts of specially designed hardware to mine can concentrate on themselves most of the computing power (as Bitmain did).

So the situation is trying to develop ASIC-resistant coins, or converting ASIC-resistant coins already in existence.

Unfortunately, to date, Bitcoin is not ASIC-resistant, and there is no realistic solution on the horizon that can make you imagine that it will become shortly. However, there are other currencies which promise to be ASIC-resistant (often without really succeeding). While for Monero this is a real battle, on the other hand, for example, for Dash this was a lost battle.

Even if it is extremely difficult to imagine that many coins can really become, and remain, ASIC-resistant (except for rare exceptions, like Monero), this is a problem that could be solved with time.

Indeed, mining through ASIC could paradoxically even speed up the solution.

In fact, such as Bitcoin and all mineable cryptocurrencies, with the mining reward that decrease with time, sooner or later mining will become so inconvenient, as it could become no longer economically sustainable, with large equipment that requires large investments.

In other words, in a few years, mining will pay so little that it will no longer be possible to buy huge amounts of expensive hardware to do it profitably.

Faster the computational power currently used to mine increases, faster the blocks will be mined, and the reward will automatically be reduced first. So at least for Bitcoin, this is a problem that will probably be solved by itself (although it will take decades).

Same speech doesn’t concern those cryptocoins that don’t have a maximum emission limit, such as Ethereum. Obviously, it doesn’t even include coins that are decentralized but not mineable, like IOTA, which in fact solve this problem at the base (without using blockchain as a ledger, but for example DAG).

CREDITS

This article was originally written in Italian by Marco Cavicchioli and translated in English by Stefania Stimolo for NovaMining.

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