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The Bitcoin (BTC) mining process is what distinguishes the peer-to-peer digital cash system from other forms of online payments. Rather than a centralized third party processing transactions, Bitcoin uses many dynamic, anonymous entities to move funds around the network.
It is this transfer of trusted third parties that allows Bitcoin to operate in a permissionless, uncontrollable, and censorship-resistant manner. All of Bitcoin’s differentiated use cases are built on this fundamental functionality.
Solving the double-spending problem using Proof-of-Work (PoW) was Satoshi Nakamoto’s major breakthrough with Bitcoin, but it is often seen as one of the weakest points in the system that is most susceptible to attack.
Someone who controls 51% of the computing power in the Bitcoin network can choose which transactions are processed; someone who controls a majority of the network's hashrate can also reorganize the network's transaction history.
That said, gaining such a large percentage of the network hashrate is no easy feat, as estimates put the network hashrate at around 70 million Terahashes per second right now.
One economist said the best way to kill Bitcoin is to compete with it, as he wants to solve the difficulties associated with shutting down or regulating the Bitcoin network. Abra CEO Bill Barhydt also pointed out that banning Bitcoin transactions may be difficult from a legal perspective, at least in the United States.
At the Bitcoin 2019 conference in San Francisco last month, Marco Streng, CEO of the largest Bitcoin cloud mining company Genesis Mining and a veteran of the Bitcoin mining industry, stated that he was shocked by the current level of centralization in Bitcoin mining, and that this problem might soon be solved through an upgrade to the Bitcoin mining protocol.
Warning signs of centralization in Bitcoin mining At the Bitcoin 2019 conference, Streng, who chaired the Future of Bitcoin Mining panel, made it clear that he does not believe the current level of centralization in Bitcoin mining is acceptable.
“I think it’s actually very concerning!” Streng said. “It’s very good that we’re talking about this because what we’re seeing is a radical, natural drive that is basically driven by the competitive advantage that large mining operators have over home miners.”
While Satoshi’s original vision of the mining process considered the concept of one vote per computer, this optimistic vision has long been abandoned in the history of Bitcoin mining. By 2012, hardware equipment built for the purpose of Bitcoin mining had been developed, and Bitcoin mining was moving towards professionalization and industrialization.
As Streng pointed out on the panel, it’s economies of scale. The cheapest electricity supply in the world and the optimizations done by the biggest players at the hardware level make it difficult for the average hobbyist with a few mining machines in a basement to compete.
Corallo, another attendee at the conference, disagreed with Streng’s concerns. Corallo acknowledged that miners could gain an advantage by having access to the cheapest electricity in the world, but he also pointed out that large blocks of cheap electricity, 10 to 100 megawatts, are in limited supply, and that these setups don’t necessarily account for a large portion of the overall network hash rate.
“When you look at the mining itself, it’s still a relatively decentralized system… When you look at the mining itself, there are literally hundreds of players, but not all of them have more than one or two network hashrates at any one moment, and at the absolute maximum, five,” Corallo explained.
A new bitcoin mining protocol is based on this problem, and Braiins CEO Janapek announced the redesigned mining protocol last week as part of a new, open, and transparent bitcoin mining stack.
This new mining protocol, Stratum v2, allows individual miners (rather than mining pool operators) to choose which transactions go into a mined block. Mining pools are much more centralized than the actual miners themselves, so moving the process of selecting transactions from pools to individual miners should be a boon for decentralization.
Stratum v2 includes various security improvements for miners, a Braiins spokesperson said in a statement when reached for comment:
“This is exactly why we invite the whole community to participate. We propose Stratum v2 to solve all the pitfalls of the current protocol, so there is no reason for the network not to follow this. Large miners may push for the implementation of the new protocol, and having a more efficient security protocol and optionally allowing the use of telemetry data is definitely one of the key motivations.”
In terms of potential obstacles facing the new mining protocol, fluctuations in the price of Bitcoin could change miners’ short-term priorities. In addition, manufacturers of Bitcoin mining equipment will need to adopt the new binary protocol included in the stack.
“Hand in hand with the protocol initiative, we are also planning to upgrade our open source mining firmware (Braiins OS) to provide first-class support for the protocol and accelerate the process,” said a Braiins spokesperson.
The ability for miners to select transactions to be included in a block is an optional feature, so the adoption of this new protocol does not necessarily mean that transaction selection will be taken over by mining pool operators anytime soon.
“While we know some large miners have been asking for this feature, we don’t know how many find it important. Either way, it is completely optional and they can leave transaction selection to the pool,” said a Braiins spokesperson.
At the end of the day, it is the responsibility of individual miners to be responsible for transaction selection and take it out of the more centralized mining pool industry.
According to a report from digital asset research firm Delphi Digital, retail investor enthusiasm seems to have returned, so Bitcoin’s recent price volatility may continue for a while. By the end of 2019, Bitcoin may have a “good chance” of reaching $42,000. |
