Bitcoin Mining Centralization Stalls Development Progress

The early days of bitcoin mining was more decentralized because regular users could build their own rigs using easy to access consumer products. Eventually mining equipment became more efficient using ASICs (Application Specific Integrated Circuits). These are special devices created with the sole intention of mining bitcoin. 

Although ASICs are more efficient, they have greatly centralized bitcoin mining into a handful of manufacturers and mining pools. The effects being that Bitcoin’s technical development and ability to scale is being held hostage by a small mining cartel in China. 

Bitmain Controversy

Bitmain is one of the largest Bitcoin ASIC manufacturers and mining pools in the world. According to bitcoinchain.com, their mining pool currently controls 22% of Bitcoin’s hashing power. The company initially raised the standards for selling mining equipment by delivering finished products immediately upon purchase instead of promoting pre-order schemes. This was an important shift that was well needed in the industry. 

Unfortunately, the company’s co-founder Jihan Wu has been using his power over the network to block a well needed technical upgrade called Segregated Witness (SegWit). Initially the scaling debate appeared to be one of block size but recent events show that this is more a power struggle over Bitcoin governance and control. 

ASICBOOST

Recently Bitcoin developer Gregory Maxwell, reversed engineered one of Bitmain’s mining chips and discovered it was using patented technology called ASICBOOST. This technology exploits a bug in Bitcoin’s code to maximize mining efficiency by about 20-30%.

SegWit would not only help scale the network, it would also fix the bug that ASICBOOST is exploiting. The nature of patenting a mining exploit goes against the open-source nature of Bitcoin. As it turns out, Bitmain controls the patent on that exploit. This shows an entirely different motivation for blocking SegWit that goes well beyond on-chain scaling solutions. 

Antbleed

Antbleed is the most recent discovery of Bitmain mining centraliztion. It turns out that many of their consumer made mining devices have a backdoor that allows Bitmain the ability to track and remotely control people’s mining rigs. With this backdoor they have the ability to shut off a large portion of the global hashrate. 

Bitcoin Unlimited gives more Power to Miners

There’s been a recent attempt to takeover Bitcoin’s development and governance model. There are over 100 volunteer Bitcoin developers who use an extensive peer-review process called “Bitcoin Improvement Propasal” (BIP). The purpose of this process is to ensure that all code is tested and secure before going live. 

Bitcoin Unlimited only has a handful of developers and is trying to bypass the peer-review process of Bitcoin. The result being that they’ve pushed out buggy code that’s led to most of their nodes crashing. If these were actual Bitcoin nodes, this would have been a complete disaster for the network, likely resulting in a financial loss for investors. 

Bitcoin governance has a balance of power between developers, node operators, users, exchanges and miners. Bitcoin Unlimited wants to give miners the ability to control the block size as they see fit, which changes the game theory of Bitcoin and disrupts that balance of power. Bitcoin mining is already highly centralized and giving miners any more power could be a complete disaster. 

Rocky

I have a passion for Bitcoin and the crypto markets. I work full-time as a cryptocurrency trader, investor and analyst. I also run a crypto trading school at skillincubator.com
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