Is Bitcoin centralised? To the question of the centralised or de-centralized nature of the Bitcoin (BTC) network

Is Bitcoin centralised? To the question of the centralised or de-centralized nature of the Bitcoin (BTC) network :

(This post has been inspired by Andreas Antonopulous’ recent YouTube video upload ‘Bitcoin Q&A: The mining process’)

The video featured the often quoted concern, which claims that approximately 60% (some even go as far as to suggest that 70%) of the bitcoin network’s hashing power is concentrated in the hands of a handful of miners.

The question was then raised: is this centralization at all? And actually what is centralization? Of course, in some ways yes, the concentration of hash power is centralization, but can we claim that this characteristic makes the bitcoin network centralized, or over-centralized?

First and foremost, it is not clear (and in fact impossible to tell with any certainty) how big is this monopoly. While 70% is probably an exaggeration, it is safe to suggest that around 50% of the hash power is concentrated in the hands of a few miners, Bitmain in particular.

Of course, this is a problem, but Antonopulous suggests it to be a temporary phenomenon, although a very problematic one. His main argument is that the enormous increase in ACIS mining performance, which we have witnessed in the last couple of years is nearing its end. 12 nanometer, at which the currently most advanced Bitcoin ASIC miners operate is pretty much the cutting edge technology, and until any new, and more advanced ASIC mining mechanism is invented, the technological domination of Bitmain will soon be less apparent. All the more so, as other manufacturers such as Samsung and Intel are already working on ASIC miners after this technological barrier has been reached.

Antonopulous also argued that operational risks and geographical factors also make it very risky for one single operation to control the majority of mining at a handful of locations. He argued that all the political, security and electricity risks that come with operating all your miners at a few geographical locations (or a single country) would automatically adjust any imbalance. Certainly, more and more mining farms were set up in various countries (Iceland, Canada, Georgia, etc.), but this type of geographical proliferation does not seem to address the concern of skeptics, who claimed that some (or most) of this geographical diversification could be initiated or controlled by Bitmain. Moreover, only a few month ago rumours and articles were circulating the internet about Bitmain installing codes and backdoors to all of its ASICs sold to retail customers, which made many to question how far individual miners or independent mining companies are able to truly control their mining operations.

At the same time, other factors threaten with further centralisation of the network. Here is for example community resistance to ASIC mining, something we have recently witnessed with the Monero community. Arguably, such drastic move, the shift from proof-of-work to proof-of-stake would be nearly impossible for the Bitcoin community, which could in fact result in Bitmain shifting its concentration from producing risky ASIC miners for newer coins, and transferring all their attention back to Bitcoin.

While it is very difficult to predict the future of the mining industry, I believe there is no serious risk from Bitmain against the Bitcoin network (which most fear). Until the Bitcoin price is slowly but steadily increases, Bitmain is interested in the success of Bitcoin. But what happens if the price of Bitcoin drops below profitability level for a longer period of time?

• images are in the public domain, and are downloaded from unsplash.com