Bitcoin Under Threat from Increasing Mining Pool Dominance
Summary:
Bitcoin's reliance on large mining pools, with AntPool and Foundry USA controlling over half of the hash rate, has resulted in increased centralization and potential censoring of transactions. Expanding mining pool consolidation poses a significant threat to Bitcoin's integrity, prompting the community to consider alternative solutions, such as running independent nodes and redirecting mining rig activities to smaller pools. This centralization impairs Bitcoin's long-term value and risks exposure to potential regulation from governments.
The increasing dominance of prominent mining pools is posing a significant risk to the integrity of Bitcoin (BTC), the globally recognized digital currency. This situation is seemingly inevitable due to a flaw in the design set out by creator Satoshi Nakamoto. Over time, Bitcoin mining has trended towards centralization. Initially, miners were able to generate blocks using CPUs on personal computers, thanks to a lower volume of miners and hence a reduced hash rate overall. This process gradually upgraded to GPUs around 2010 and subsequently to application-specific integrated circuit (ASIC) miners by 2012. These ASICs led to the emergence of large-scale mining businesses, operating hundreds or even thousands of rigs.
Miners who manage a larger portion of Bitcoin's network hash rate have a higher likelihood of mining blocks and collecting the Bitcoin block reward, which incentivizes the verification and addition of transactions to the Bitcoin blockchain. As such, many small-scale miners join mining pools to collaborate with others operating their own ASICs, leading to earnings that correspond to the computational power they bring to the pool's network. The most dominant of these mining pools, AntPool and Foundry USA, currently oversee more than half of Bitcoin's hash rate.
The existence of mining pools represents a centralizing force in the Bitcoin network, as larger pools generally have more efficient operations, and further pose the threat of a 51% attack on the network should they control over half of the Bitcoin network hash rate. Over time, these pools have led to an increasingly centralized and vulnerable Bitcoin mining landscape.
In an even more concerning development, AntPool and Foundry USA require miners to go through stringent Know Your Customer protocols. As of May 2024, these two pools alone managed over half of the network's hashing power, enhancing their ability to censor transactions by choosing not to confirm them. F2Pool has been known to censor transactions from Bitcoin addresses that have been sanctioned by the Office of Foreign Assets Control (OFAC), a U.S. Treasury subsidiary.
Truthfully, it is hard to trust that these miners will refrain from misusing their power to censor transactions. Worse still, such measures appear to be futile as wrongdoers can simply create new Bitcoin addresses when needed. Alternatively, they could switch to a more private currency like Monero, making it harder for mainstream law enforcement agencies to track their transactions.
A comment by Matt Corallo, a Bitcoin developer, affirmed that this significant miner centralization threatens Bitcoin's long-term value proposition. When a single group controls over half of Bitcoin's mining power, issues like censorship and double spending can occur. Large mining companies can also be susceptible to pressure from either the US or Chinese government to block transactions from Bitcoin blocks.
Donning an additional layer of complexity, BlackRock, a significant player in the investment landscape, has recently gotten involved in Bitcoin mining through investments in leading miners such as Marathon Digital, Cipher Mining, and Terawulf Inc. This involvement leaves an opening for Wall Street to potentially exert influence over the Bitcoin mining index in much the same way that finance giants BlackRock, State Street, and Vanguard hold sway over the stock market.
To combat this increasing miner consolidation, the Bitcoin community could look towards operating as many independent nodes as they feasibly can. In the event of a 51% attack on Bitcoin by a mining pool, nodes could opt for any untouched chain. Owners of ASIC machines can help prevent such an attack by redirecting their mining rigs to a different pool. Those operating an ASIC machine should ideally avoid sending it to the largest pools – namely AntPool or Foundry USA – which require significant personal information. All mining pools stand to lose business this way, which could serve as a deterrent from malicious behavior.
This article is written by guest author Kadan Stadelmann for Cointelegraph. Stadelmann is a technology officer for the Komodo Platform, and a graduate from the University of Vienna and the Berlin Institute of Technology. He joined the Komodo team in 2016. The views expressed in this article are the author's alone and do not necessarily represent Cointelegraph's view. The information in this article is provided for educational purposes only and is not intended to act as legal or investment advice.
Published At
5/17/2024 12:17:08 AM
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