For years, centralization of Bitcoin mining has been a fear among network participants. Die-hard bitcoin evangelists and capitalist day traders alike agree that one entity controlling the hash rate could spell catastrophe for Bitcoin and for the cryptocurrency space as a whole, completely undermining the underlying principles described in the Bitcoin whitepaper and completely destabilizing the market and price action as well.
Bitmain, the world’s largest manufacturer of specialized ASIC Bitcoin mining equipment, is often accused and suspected of having a disproportionately high level of influence over the hash rate due to the giant mining pools like BTC.com and Antpool which are under its control.
A report in July indicated that Bitmain actually already controlled 42% percent of the hash rate, a stunningly high figure with BTC.com controlling 2.5% and Antpool controlling 16.5%.
An entity in control of 51% of the hash rate or higher would essentially have free reign over the network, being able to reject or accept transactions at will and carry out 51% attacks, whipping money out of thin air to become rich at the expense of the integrity of the network.
A successful 51% attack on Bitcoin would make the attackers incredibly wealthy while also catastrophically impacting the price of Bitcoin, perhaps permanently, due to the loss of trust in the network. While Bitmain are getting incredibly wealthy simply by manufacturing effective mining equipment, there is arguably an incentive for the company to attack Bitcoin simply to strengthen the Bitcoin Cash project, although CEO Jihan Wu has never given an indication that he would be interested in doing that.
For many, 42% is far too high for one company to control, and there are theories that Bitmain secretly controls other pools as well.
However, the 42% seen in July has actually dropped significantly instead of increasing as expected.
As you can see from today’s report from Coin Dance, BTC.com now controls 15.2% and Antpool controls 13.9%, a total of 29.1%.
Why the sudden drop? The answer may lie in the recent lack of innovation seen in Bitmain products coupled with the increasingly more effective hardware released by other companies finally starting to break Bitmain’s ominous monopoly on the largest cryptocurrency network in the world.
We covered the various mining companies and hardware options in our recent article “Mining Wars,” which showed that Halong and other companies are doing great work catching up and surpassing Bitmain’s performance. but what has Bitmain been up to?
Bitcoin mining commoditization: it’s happening, and it alleviates one of the greatest historic threats to the network’s decentralization. https://t.co/zygopbb4jH
— Tuur Demeester (@TuurDemeester) September 21, 2018
Adamant Capital founder Tuur Demeester describes the breaking of the monopoly as the “Commoditization of Bitcoin,” and agrees that the threat to the network is significantly lower with Bitmain operating on a more level playing field.
Demeester cites a recent twitter thread posted by Blockstream’s Samson Mow, someone in indirect competition with Bitmain due to the company’s support for Bitcoin Cash over Bitcoin. Mow frequently posts critiques of Bitmain’s progress and activities, but this time there may be some substance to what he’s saying.
Bitmain’s New Release a Letdown?
Mow used to work as COO for BTCC crypto exchange before heading up Blockstream, and while he is enormously biased when it comes to discussing Bitmain, it’s safe to say that he knows his Bitcoin mining.
“Let’s take a closer look at Bitmain’s announcement at WDMS Mining Conference for their “next gen” 7nm ASIC chips. To most people this may seem like a big deal and good news, but actually the announcement shows things aren’t looking too good for Bitmain.”
- Mow states that the announcement is vague and fails to mention when exactly the new next-gen chip miners will be released for public sale, which is true.
- The announcement also states that the 7nm chip will include over a billion trannsisters. Mow says that the statement is deliberately misleading, stating that chip with a billion transistors “sounds impressive to people outside the industry, but it’s not.” It’s like saying “the car will have 4 wheels,” according to Mow, and 8nm or 10nm chips could eqally have a billion transistors.
- The next bone Mow has to pick with Bitmain is the “lab testing” statement. Bitmain reports results of 32J/TH energy efficiency in lab testing – however, as Mow points out, lab testing always demonstrates the peak performance in ideal lab conditions which are nearly impossible to replicate outside of the manufacturer’s laboratory, making this an inflated figure which does not reflect the energy efficiency which will be experienced by Bitmain customers, as the average efficiency rating is still unknown.
- It’s also worth pointing out that these are the results for the chip itself, not an entire bitcoin miner – it is unclear how relevant the results be if at all once the chip is tested inside an actual ASIC miner.
- Mow also mentions that the S9’s chip was initially marketed as having an energy efficiency rating of 75J/TH. In real world situations, the S9 runs at around 98J/TH, or about 30% higher power consumption than reported in the lab. “So it’s likely the new Bitmain miner with 7nm chips runs at 55J/TH at best.”
- Mow compares the Bitmain announcement, which explained that a new chip had been made for release “soon” along with lab test results outside of a miner, to the launch of the WhatsMiner M10 which had a live miner demo with real stats not measured in lab conditions.
- Finally, Mow points out that the WhatsMiner uses a 16nm ASIC chip which can be manufactured at half the cost of a 7nmchip, and speculates that even if the 7nm launch results in a good quality miner, the cost may be too high for it to be a feasiboe solution for many miners.
This is all rather incredible sounding given the huge monopoly Bitmain has historically had on Bitcoin mining. Could it be that the tables are beginning to turn and other competitors will begin to snap up larger tracts of the has rate?
Apart from the usual concerns associated with capitalist monopolies, the healthy competition from other miners should indeed prove to bring Bitcoin mining back from the brink of total vulnerability and into a more manageable zone of free market competition and decentralization.
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