The progressive centralization of Bitcoin hash power has remained a concern with blockchain libertarians since the earliest days of the Bitcoin network. The entrance of ASIC hardware into the mining ecosystem and the inevitable launch of large-scale mining pools has resulted in the concentration of Bitcoin hashing power, potentially risking the decentralized nature of the network itself and presenting the possibility of 51% attacks.
A new report published in February 2019 by Canadian wealth management firm Canaccord, however indicates that increased competition amongst mining hardware manufacturers is causing the decentralization of Bitcoin hashing power.
Cheap Next-Gen Hardware Diversifies Mining Market
Canaccord’s recent report demonstrates that no single mining pool currently controls more than 20 percent of the Bitcoin hash rate. More recent data from Blockchain.com’s hash rate distribution tracker reveals an even more decentralized ecosystem, with major pools such as F2Pool, SlushPool, and AntPool controlling roughly 11 percent of the total Bitcoin hash rate.
The current state of hash rate distribution is significantly different to the mid-2018 mining ecosystem. In July 2018, Ethereum co-founder Vitalik Buterin addressed the issue of hash power centralization in a series of open questions regarding the blockchain industry, asking “Bitmain and affiliated pools now have ~53% of all Bitcoin hashpower. Isn’t this a really big problem?”.
At the time, Bitmain — the largest manufacturer of ASIC miners — controlled more than 50 percent of Bitcoin hash power, spead over AntPool and BTC.com. The centralization of Bitcoin hash power into the hands of single large-scale mining enterprises is particularly concerning to blockchain libertarians, who argue that it presents the possibility of a 51 percent attack.
The recent shift toward a more decentralized Bitcoin network evidenced by the Cannacord report is driven by the commoditization of Bitcoin mining chips — Cannacord cites advances in ASIC technology and wider ASIC availability as a major driver in hash power distribution.
The report specifically highlights Bitmain’s apparent failure to produce a competitive and “meaningfully superior” alternative to the highly successful Antminer S9, noting that competitor Canaan Creative has accessed a broader audience that can “effectively compete” with Bitmain.
Geographic Centralization Still an Issue
While it’s highly unlikely that the largest mining pools in the world would execute an attack against the source of their profits, a joint study published by Princeton University and Florida International University highlights the fact that the geographic centralization of Bitcoin hashing power could present some very serious risks.
Published in October 2018, the report — titled “The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin” — notes that the high concentration of Bitcoin hash power in China could result in Chinese legislative action against mining. The centralization of hash power in China, argues the report, could potentially upend global and domestic Bitcoin markets via restrictive regulation.
China isn’t the only region favorable to Bitcoin miners, however. Large-scale mining operations typically operate within China due to low-cost hydropower and relatively low hardware costs. Recent developments in geothermal and hydropower production in Icelandic and Canada, for example, have resulted in the launch of multiple large-scale mining ventures outside of China.
The progressive decentralization of Bitcoin hash power has had an overall positive impact on the mining ecosystem, with mining profitability increasing for the first time in 19 months in February 2019.
