Bitcoin is often lauded by enthusiasts for the same reason that it’s feared by critics – it’s leaderless.
Nobody owns it, nobody controls it, and nobody can tell it what to do. For critics, this means anarchy, a speeding car with a driver passing out at the wheel. No responsibility, no accountability – chaos. It’s terrifying.
Of course, people like that are easily terrified, and the thing they hate the most is not being in control. For supporters, the concept is pure bliss – a system where everyone is equal, there’s zero authority to answer to, and even the inventor is a mystery. Truly decentralized.
That’s what the media keeps saying — decentralized. “Bitcoin is a cryptocurrency and worldwide payment system. It is the first decentralized digital currency, as the system works without a central bank or single administrator.”
And it’s true, right?
In theory, yes. Satoshi Nakomoto’s white paper did indeed describe a decentralized form of payment that would allow the community to govern itself autonomously and without heirarchy. Anarchy in the true sense of the word, not the “let’s flip over that cop car and cover it with graffiti” sense.
In practice, of course, it’s a different story. Many people feel that Bitcoin is going a down a slippery slope, while to others, it’s already happened and it’s too late to ever realize Nakomoto’s vision.
How could centrality occur?
As you may know, Bitcoin is “mined”, meaning new coins are discovered and released into the market by miners using the Proof of Work consensus. A miner uses computer processing power to solve complex puzzles that allow new blocks of information to be added to the chain, and the fact that it’s consensus-based means that other miners have to verify this action before it becomes approved. This is supposed to create an honest, decentralized blockchain. Because the miners are spread across the world and anyone can mine, even just using their gaming PC’s graphics card, mining is a community effort with no leader.
The only thing that would centralize Bitcoin is organized mining collectives, which of course is exactly what we’re seeing in the featured image. Antpool is the second biggest, the pool run by the Chinese Bitmain company that produces ASIC mining chips that are specifically engineered to mine cryptocurrency. At the top spot we have BTC mining pool, another Chinese group. In fact, 81% of the Bitcoin hash rate is controlled by Chinese mining pools, meaning that were all mining pools to collaborate, the system wouldn’t be decentralized at all.
Why join a mining pool?
Mining pools offer benefits to members, which is why they’re so popular. By concentrating all that processing power, they can mine a lot more efficiently, and then more accurately predict the rewards they’ll get for mining. Bitcoin miners receive Bitcoin for solving the algorithms required to add new blocks to the network, and mining pools offer miners a more consistent living.
Chinese electricity is cheaper than in most places, and because electricity is a primary expense in crypto-mining, China has become a more profitable place to mine, leading it to become the world’s biggest “exporter” of Bitcoin. Why someone might want to join a mining pool is clear – but who owns them?
While the main pools controlling more than 10% is worrying enough as it is, there are concerns among the community that these pools might actually be collaborating for personal gain against the interests of the market. I’ve written before about who’s behind the Antpool mining collective, but of far greater concern is the idea of a mining cartel – a pool of pools – controlling more than 51% of the hash rate. Here’s why.
Once an entity controls 51% of the hash rate, it’s over. Bitcoin is no longer centralized. Such an entity could essentially make up the rules as they went along, creating whatever reality they willed upon the Bitcoin community. They could destroy the defense against double spending by mining a certain amount of Bitcoin, and then forcing the network to fork into a different “reality”, essentially ignoring the fact that Bitcoin had been spent so that they could do it all over again.
This is the issue with every centralized monetary system, of course – if a government owes another country a billion units of their nations currency, they can simply print off those units and hand them over, devaluing their currency in the process.
Bitcoin was designed to prevent such actions, but centralized mining may be getting the better of Nakomoto’s vision. These pools may well be collaborating already, and if they aren’t, many feel that it’s only a matter of time. The fact that the majority of Bitcoin is mined in a totalitarian country seemingly quite against the idea of non-state cryptocurrency is a huge problem, and the only solution may be forking to the Proof of Stake system like Ethereum. Of course, this is easier said than done.
Apart from the fact that a huge move like that would cause even greater instability in the market, because Bitcoin supposedly has no leader or governing body, who do you think decides whether or not the network will fork?
Yeah, that’s right.
So it’s over?
Not by a long shot!
A number of groups are working to offset the issue of centralization, and they’re showing real promise in the Battle for Bitcoin.
The market is an adaptive beast, and when a problem arises, potential solutions are sure to follow. Halong Mining is one company aiming to bring competition to the ASIC mining space with their Dragon Mint ASIC series. They state that the “the project is motivated by, and driven to help facilitate greater decentralization in Bitcoin mining at all levels, and make sha256 great again”.
The mining hardware uses patent-pending Asic Boost technology that they claim can mine 20% faster than competitors, which is the key word here – anything that can help put the squeeze on the Antmining monopoly can help introduce more decentralization to Bitcoin.
But it’s not just new products that will help in the fight – China may have the majority of miners, but other countries with cheap electricity are stepping up to the plate as well. The first thing that crossed a lot of people’s minds when 600 Bitcoin mining rigs were stolen in Iceland was “Wow, that’s a lot of rigs for a tiny country!”
Iceland has a population of just 330,000, but and it also has huge geothermal and wave energy plants that allow the country to run 100% on renewable energy and offer very cheap electricity, making it an attractive place to mine. Georgia is another hotspot, punching way above its weight in the list of top three countries where Bitcoin is mined. China is number one, and the US is coming in second place.
Hotspots like rural Washington offer electricity prices that are turning the state into a hotbed of Bitcoin mining activity, and as more nations get in on the action, the power is distributed more widely, just as Nakomoto intended. Whether the competition will be enough to take on the Bitcoin super-giant that is China is anyone’s guess, but at the moment, it’s far from over. Bitcoin mining is becoming increasingly competitive, and with not just immediate financial gains but the entire future of Bitcoin in the balance, the stakes are high – and the race is on.