There are a lot of people who are looking to get involved in the world of Bitcoin mining. For those who might not know, this is a great way for people to get involved in the world of Bitcoin while also making money. At the same time, people might have heard about something known as the centralization of Bitcoin mining. Some people might even be wondering if this is a threat. After all, if this is a threat, it might also place people’s coins at risk. There are a few points that everyone has to know when it comes to coins, Bitcoin mining, and the threat of centralization.
What Is Bitcoin Mining?
First, Bitcoin mining is one of the top ways that people can make money using the world of Bitcoin. In the world of Bitcoin mining, people are essentially making new blocks that can be added to the blockchain. In order of a new block to be accepted by the rest of the blockchain, this new block has to be verified by the other blocks that are currently members of the chain. If the old blocks deny the new block, or say it is not valid, then it is not accepted. If the old blocks accept the new block, then the new block is added to the chain and the people who developed it through the process of Bitcoin mining are awarded something known as a transaction fee. In order for new blocks to be mined, people need to use something called miners. These miners are powered by electricity and are literal pieces of hardware that can be used to solve math problems quickly and mine blocks.
Now, there is a balance between the electricity these miners use and the profit they generate on top of this. In order for people to know whether or not they are making a profit, they need to know whether or not they are using more electricity than the value of the blocks they are making. This is why it is a good idea for people to use an electricity meter to track the amount of power their miners are using.
The Problem of Mining Centralization
There are some people who are concerned that an individual might be able to take over the majority of the hashrate, or the ability to dominate the writes that go into the ledger. This means that they can produce a longer chain than the other people put together. This might be possible to rewrite history by making a longer proof-of-work chain, broadcasting their own chain at a later date. This means that some people believe the majority might be able to write anything they want into the ledger.
The good news is that this is simply not true. People cannot write anything into the blocks. They can only write Bitcoin transactions. If they write anything into the blocks that are not Bitcoin mining transactions, then the block will be rejected. Some of the things that people will still not be able to do include:
- Users cannot move or spend coins that do not belong to them which is stealing
- Users cannot make new coins out of thin air, which would lead to inflation
- Users cannot mine coins faster than the algorithm will allow
Any of these activities would cause their blocks to be rejected by the ledger. Now, at the same time, there are some other things that people can do. For example, if someone controls the majority, they might be able to stop the blockchain from reading transactions. They might even be able to rewrite the ledger; however, this is simply not a good idea. The reality is that it is very expensive for someone to do and the yield would be so little. Therefore, there is simply no incentive to do this. The reality is that it would be more profitable for people to play the game and mine more Bitcoins.
There are some people who have tried to perform one of the attacks above; however, those who are successful usually have other people come after them. It is very hard for people to take the money they get from these attacks and buy expensive things anonymously. Therefore, this also limits the value of the profit people get from these attacks. Again, people would have to try to do this without getting noticed. The transparency of the Bitcoin mining network makes this hard to do.
Evaluating the Threat of Centralized Bitcoin Mining
As a result, the threat of Bitcoin mining centralization is not as real as people think. There are only a few Bitcoin mining pools on the network right now and these Bitcoin mining networks do add up to control the majority; however, they do not work together and the individual miners who are a part of these Bitcoin mining pools can switch away from these pools and go elsewhere at any given time. For example, Slushpool controls about 10 percent of the total hash rate on the Bitcoin mining market. While they might become malicious actors at some point, the miners who are a part of that specific Bitcoin mining pool would simply go elsewhere. This is what happened back in 2014 when one group started to approach that 51 percent mark. In the end, the people who use Bitcoin mining know that their future is going to depend on the network remaining decentralized. If there is ever a time when the network might start to become centralized, there is a good chance that those who are involved will simply switch pools and go elsewhere.
To sum it up, those who have coins through Bitcoin mining are going to be safe. There is not a real threat from Bitcoin mining centralization because the incentive simply isn’t there. People have the ability to make more money at a higher rate by simply playing the game and building new blocks legitimately. The future of Bitcoin mining is safe.