Is the Threat of Bitcoin Mining Centralization Real?

Table of Contents

There are a lot of people who are looking to get involved in Bitcoin mining. This is an excellent way for people to get involved in Bitcoin while also making money. At the same time, you 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?

In the world of Bitcoin mining, people are essentially making new blocks that can be added to the blockchain. For a new block to be accepted by the rest of the network, it has to be verified by the other nodes on this network. If the Bitcoin nodes deny the new block or say it is not valid, then it is not accepted. If the Bitcoin nodes accept the new block, then the new block is added to the chain and the people who produced it through the process of Bitcoin mining are awarded something known as the Bitcoin subsidy and Bitcoin transaction fees for that block. For new blocks to be mined, people need to use something called ASIC 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. 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

Some people are concerned that an entity might be able to take over the majority of the hash rate, or the ability to dominate the transactions that go into the ledger. This could make it possible to rewrite history by making a longer proof-of-work chain and broadcasting their chain at a later date.

The good news is that even if a miner could become dominant, other nodes will still keep the entity in check for them to respect the rules. They could only write valid 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 network. But there are some other things that a malicious entity could do. For example, if someone controls the majority, they might be able to stop the blockchain from adding new transactions by creating empty new blocks every ten minutes. They might even be able to rewrite the blockchain; however, this is not a good idea as it is becoming less and less practicable. The reality is that it is costly for someone to do, and the yield would be so little, if any. 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.

Some people have tried to perform one of the attacks above; however, those who are successful usually have other people come after them. It is tough 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 can 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 pools 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 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 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 isn’t there for collusion. People can make more money at a higher rate by merely playing the game and building new blocks legitimately. The future of Bitcoin mining looks safe.

Share the Post:

Disclaimer: The information provided on this blog is for informational purposes only and should not be taken as any form of advice.

Related Posts