Five companies out of China control nearly half of Bitcoin’s computing power, according to a new report released Friday by blockchain analysis firm TokenAnalysis. As a result, Bitcoin’s “trustless network” continues to erode as mining power concentrates into the hands of a few.
As of Jan. 27, the AntPool, BTC.com, BTC.top, F2Pool, and ViaBTC mining pools control 49.9% of the network—the highest concentration of mining power yet, according to the report. All five pools can be accessed via BitDeer, a company that ironically bills itself as a “computing power sharing platform users can trust.”
Bitcoin’s security depends on the network remaining decentralized. If a single entity, or group of entities under the control of one company, like Bitdeer, were to gain control of more than half of the network’s computing power, they could in theory use that to launch a so-called 51% attack. That would allow them to reverse transactions that were completed while they were in control of the network—meaning they could double-spend bitcoins.
“Once a consumer has paid BitDeer for a plan, they can assign that hashrate to any partnership mining pool,” TokenAnalyst said. But therein lies the risk. According to the report: “What is to stop the entities merging into a single large entity that maintains a degree of separation via address structure?”
Miners play a central role in Bitcoin’s network. They run the computers that compete for block rewards, which include new bitcoins freshly minted by the system. Winning a block is a bit like winning the lottery. Your odds increase with the more guesses you make. In Bitcoin’s early days, the promise was that anyone could mine bitcoins themselves. But as the price of bitcoin rose, more people jumped into the game. And because it benefits from economies of scale, mining became increasingly centralized. Starting in 2014, bitcoin’s mining network was based almost entirely in China, running on cheap, subsidized local electricity.
In a sense, BitDeer democratizes Bitcoin mining, because you no longer have to purchase a specialized ASIC machine that can run into the thousands of dollars—and require constant replacing as new, faster chips enter the market. You simply pay someone else to mine bitcoin on your behalf, reaping a percentage of the block reward in the process. However, it also centralizes control of the mining process.
“Any centralization of bitcoin network hash power should be of concern as it erodes the trustless model of the network,” TokenAnalyst said. The report urges users to do their research before joining mining pool. “Joining a more independent mining pool or a pool with a smaller proportion of the hash rate will help ensure the integrity of the network,” it said.
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September 23, 2020 -
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