One of my favorite readings each week comes from diar.co. Not sure about their readership levels, but the content is superb. The brought to light a concern I have had with Bitcoin for a while; mining of Bitcoin is reliant on hardware which makes it a industry model similar to any industry in which scale is the primary factor in success. Think US railroads in the 1800’s, automobiles from 1920 – 2010, steel manufacturing, etc. I have been lightly aware of the growing influence of just a few mining firms, but the article below shows the levels of consolidation happening in the Bitcoin Mining industry. It would not be a far fetched thought to believe the lowest cost producers have been working to drop the price of Bitcoin to being marginally incentivizing to those miners in an effort to force out smaller players and further consolidate power. I suspect that Satoshi’s original concept did not end up with a oligopoly running the Bitcoin network, bet we are heading there. Bitcoin is a great invention of peer-to-peer, near frictionless transactions between unknown third parties, but the world needs better.
Bitmain Consolidates Hashing Power Over Mining Pools
Last week, mining pools operated by Bitmain, a Chinese company that controls majority of ASIC miner production, controlled a combined hashrate of more than 42%. Of the two pools run by the outfit, BTC.com mined more than 26% while Antpool mined approximately 16% of Bitcoin blocks in the last week. Bitmain also operates ConnectBTC, its third mining pool, but it only mined less than 0.2%.
It’s worth noting that Bitmain led the Series A funding round in ViaBTC, which operates the fifth largest pool with approximately 9% of the hashrate. ViaBTC asserts that the company is 100% independent and that Bitmain is only the lead investor.
Bitmain’s Bitcoin mining pools centralization is now a mere 8% to the critical level of 50%, which is a serious concern because it potentially threatens Bitcoin’s immutability. It could give one entity a certain degree of control over the whole network such as blocking or reversing transactions. Bitmain doesn’t disclose what percentage of hashrate out of its pools it physically operates but it controls the block templates for the entire pool nonetheless. If Bitmain attempted to misuse its hashrate, it can be expected that the individual miners in these pools would quickly switch to different pools. But then again, it is not exactly clear what is the actual percentage of hashrate that users in these pools control.
In 2014, GHASH.io, a now defunct mining pool, briefly exceeded the 50% threshold but voluntarily decreased its hashrate to under 40% and promised that it will not exceed 40% in the future. Antpool, on the other hand, just announced that it will temporarily eliminate fees from 4% to 0%, which would spurn on further adoption.
Matt Corallo, Bitcoin Core developer, is working to develop an alternative to the currently most used mining protocol Stratum, which would allow individual miners to use their own block templates instead of having to use the block templates chosen by the pool. His mining protocol dubbed BetterHash would help decentralize Bitcoin mining.
As Diar noted in June, the daily estimated profits from Bitcoin mining have decreased by more than 80% in 2018 (Diar, 4 June). According to Bernstein Research, Bitmain controls 70-80% of the Bitcoin mining hardware market, which only furthers the centralization problem. Bitmain has a very significant hardware cost advantage compared to all the other pools as well as priority access to the newest hardware. If Bitcoin mining profitability continues to decrease, it can open the doors for small miners to switch to more profitable coins, which would effectively lead to an increase in Bitmain’s pools hashrates.
Steve Leahy, Managing Director, ntrd