Bitcoin is a decentralized and trustless system which is used to transfer value and safely store it. But after a decade as we enter into 2020, the peer-to-peer network has started to “become a highly centralised system that places an increasing amount of trust in a small number of large entities,” according to the latest report of the crypto data firm TokenAnalyst.
Bitcoin has become more centralized than ever before. The report states the bitcoin mining industry is now dominated by a limited number of entities that have a power base in China.
For this assessment, the company used a metric that is calculated by identifying the addresses controlled by the mining entities and the blocks mined by them.
5 Mining Entities Controlled 49.9% of the Bitcoin Hash Rate
In the last decade, the awareness and adoption of the world’s leading cryptocurrency grew. But so did the competition. This competition in the mining space has several smaller participants becoming unprofitable and leaving the market. These small miners were then replaced by large operations that formed partnerships.
These mining pools have many participants who contribute their hash power to the pool in return for a proportion of the 12.5 BTC received from successfully mining blocks.
And it is because of these mining pools, today, five mining entities AntPool, BTC.com, ViaBTC, BTC.top, and F2Pool, all of which are based in China and controls 49.9% of all computing power on the network. These entities are available through BitDeer that lets consumers rent their mining power without buying or even setting up mining hardware.
“On 27th January 2020 these 5 mining entities controlled 49.9% of the hashrate of the bitcoin network,” reads the report.
BitDeer’s partnership with Bitmain, who owns Antpool, provides the former a powerful way to ensure their AntMiner line of products is used by a cabal of major mining pools. But this level of cooperation “blurs the line between distinct entities.”
“Once a consumer has paid BitDeer for a plan, they can assign that hashrate to any partnership mining pool,” TokenAnalyst said in the report. “Does it really make a difference anymore? What is to stop the entities merging into a single large entity that maintains a degree of separation” via address structure.
Eroding the trustless model of the network
Over this last decade, bitcoin mining has changed dramatically. Earlier GPU rigs were used, which were joined by a larger base of consumers who then shifted to FPGA and ASIC miners. But as mining blocks became difficult miners started forming mining pools.
Now the entry large-scale cloud mining operations have further lowered the barriers to entry allowing individuals to purchase hash rate plans without the need to expand their capital, complicated set-up, and admin or maintenance.
This allows an average consumer to do the only thing they want to do that is mining which although a good thing, puts concern over the centralization of bitcoin network hash power as “it erodes the trustless model of the network.”