A Growing Threat: Big Miners and Bitcoin's Future
[TL; DR]
AntPool and Foundry USA controls over 51% of the current Bitcoin computing power.
If firms that collectively control more that 51% of the bitcoin hash rate collude they may prevent confirmation of certain transactions which reduce BTC users’ freedom.
The entry of new node operators in the bitcoin mining sector will likely reduce centralization.
Introduction
Innovation has led to changes in different crypto ecos. While most innovations result in positive developments, some lead to unexpected outcomes. For instance, the popularity of bitcoin mining as a source of sustainable income for investors has led to its professionalization, which has resulted in centralization. This article explores the impact of the dominance of a few crypto mining firms in the bitcoin sector.
Dominance in the Digital Depths: AntPool and Foundry USA’s Hash Rate Control
In the early days of cryptocurrencies, people mined bitcoin using central processing units (CPUs), which are standard processors in computers. Satoshi Nakamoto’s original vision was to support the decentralization of the financial , which means that anyone who had a computer could mine bitcoin.
However, as the price of bitcoin soared and the cryptocurrency became very popular many companies turned crypto mining into a professional business that required much investment. Right now, bitcoin mining is in the hands of a few big firms. For example, by the end of May over 50% of bitcoin hash rate was in the hands of AntPool and Foundry USA.
Bitcoin Mining: Transition from Decentralization to Centralization
Bitcoin decentralization was probably much higher in the earlier days than the later ones. Basically, as the years moved on bitcoin mining became more centralized than before. This was a result of the transition of bitcoin mining from personal computers to newer machines that include GPUs and application-specific integrated circuit (ASIC) miners. For instance, GPUs became popular in 2010 while ASIC miners came onto the market in 2012.
When the ASIC miners started dominating the market large companies invested much in bitcoin mining. In practical terms, the miners that control much hash rate mine many blocks, thereby collecting much more bitcoin block reward than the smaller mining firms. That development led to the formation of bitcoin mining pools. As a result, many small-scale miners opt to join the pools to cut costs and increase revenue.
With mining pool dominance many small to medium-sized mining firms lend their computing power to bigger firms in the industry. Although AntPool and Foundry USA are the biggest players in the sector there are other big bitcoin mining companies that include Marathon, Riot, Hut 8 Mining Corp, CleanSpark and Canaan Inc. In all, large mining pools lead to bitcoin mining centralization resulting in blockchain integrity threats.
The Evolution of Mining: From CPUs to ASIC Giants
For us to understand the rise of bitcoin mining centralization let’s look at the technological development that occurred in the sector. During the earliest days of cryptocurrencies people used Central Processing Units (CPUs) to mine bitcoin. This meant that anyone who had a computer would participate in BTC mining. However, a few years later there was a transition from GPUs to CPUs. Notably, the CPUs had higher hash power and could discover blocks faster than GPUs. The introduction of CPUs in the sector marked the start of competitive bitcoin mining and the emergence of centralization.
Nevertheless, miners that aimed to further improve their bitcoin mining efficiency sought better mining equipment than CPUs. That led to the introduction of Field Programmable Gate Arrays (FPGAs). This blockchain technology for bitcoin mining was more efficient than GPUs and demanded less electricity as well. However, the FPGAS did not last for a long period due to the introduction of the ASICs which became the most preferred bitcoin mining technology.
Application-Specific Integrated Circuits (ASICs) revolutionized the bitcoin mining sector since they are efficient in terms of various parameters such as block discovery. The miners impact is also high as they have led to lower costs than before, thereby increasing profit. Nonetheless, they have contributed much to bitcoin mining centralization. This is because these machines are expensive to buy and maintain. They also consume a lot of energy which means that miners in regions with lower electricity have a competitive advantage over those in areas where energy is expensive.
Design Flaw or Destiny? Satoshi Nakamoto’s Oversight
From what we have discussed above you can guess that the existing scenario in the bitcoin sector may not be the one that Satoshi Nakamoto, the bitcoin founder, might have envisioned. It is mostly likely that at the time that Nakamoto invented bitcoin he thought that many people might participate in bitcoin mining using CPUs.
The professionalization of the bitcoin mining sector and the resultant competition mean only a few financially capable firms can mine the precious asset efficiently. Thus, the influx of corporate interests has pushed individuals and small miners out of the sector, leading to cryptocurrency centralization risk.
Apart from the financially well-endowed firms the small to medium companies are joining cryptocurrency mining pools which have become large consortiums that control much bitcoin hashrate. Also, most of these companies are located in regions where electricity is cheap. What this means is that the miners that operate in areas with high electricity costs are exposed to more crypto investment risks than those based in regions where power is relatively cheaper.
The 51% Attack Scenario: A Real Threat to Bitcoin’s Network?
In theory the increase in bitcoin mining centralization may lead to 51% attack if the few dominant players collude to do so. However, in practical terms it is very expensive to carry out such an attack. Generally, though, the fact is that if two or more bitcoin mining giants and mining pools agree to ute a 51% attack they can succeed as long as they own at least 51% share of the bitcoin hashrate.
In the current situation, we have already seen that only AntPool and Foundry USA control more than 51% of the hash rate. Now, if these two firms collude with three or four other leading bitcoin miners to launch the 51% attack they can succeed.
The Debate over Transaction Censorship: Safety vs. Freedom
Apart from a 51% attack, a few firms that control at least 51% of the bitcoin hashrate can also make unilateral decisions that affect the bitcoin network security and bitcoin user trust. Upon making an agreement such firms may prevent the confirmation of certain crypto transactions. That would violate the bitcoin users’ freedom as that prevents some bitcoiners from using their holdings as they desire.
As you may be aware of, bitcoin transaction censorship occurred in the past. At one time, several miners censored bitcoin wallets that were on the sanction list of the Office of Foreign Assets Control (OFAC), a financial intelligence and enforcement agency under the U.S. Treasury. In October 2023, for example, a bitcoin developer with the address 0xB10C discovered that his/her transactions were intentionally filtered. When the developer queried why his/her transactions were not confirmed Chun Wang, F2Pool co-founder, admitted that they had not approved it due to the sanctions the United States had imposed on Russian companies and citizens.
As things stand, influential countries like the United States and China may force certain bitcoin mining consortiums to exclude transactions from certain bitcoin blocks. More significantly, if a few firms control much of the bitcoin computing power they can censor certain transactions and even double spend some assets. If such a situation occurs it will show that the supposedly decentralizing bitcoin network has become dysfunctional.
However, currently no such situation has been recorded, showing the integrity of the current large-scale bitcoin miners. Also, despite these emerging bitcoin network security issues, it is essential to realize that due to the open nature of the proof-of-work many other bitcoin miners can join in, especially if some highly capitalized bitcoin investors notice the growing dominance of the existing bitcoin mining companies.
The Future of Bitcoin: Navigating the Challenges of Centralization
Mining pool consolidation poses a great risk to the global effort to decentralize the Bitcoin network. However, in the future, the entry of new node operators will likely reverse the current bitcoin mining dominance, thereby reducing the centralizing force of large mining corporations and consortiums. To achieve this, the smaller node operators should join different mining pools.
Obviously, the bitcoin community will continuously monitor developments in the sector to prevent overcentralization of mining activity. Once governments realize that some miners are posing blockchain integrity threats, they may create relevant crypto regulation to deal with the issue. Read also about the future of bitcoin mining.
where to buy Lido Staked Ether
Bitcoin mining centralization that is arising from mining pool dominance is posing a great threat to the industry. For example, currently AntPool and Foundry USA own more than 51% of bitcoin computing power. Apart from these two, there are other large bitcoin miners that include Marathon, Riot, Hut 8 Mining Corp, CleanSpark and Canaan Inc. The emergence of new mining firms will prevent further dominance of a few corporate entities in the sector.
