A recent TokenAnalyst report claims a single entity could be in control of around 50 percent of bitcoin’s hashrate. The observation is based on the fact that five large mining pools have launched a new cloud mining service as a joint venture.
“In 2020, bitcoin has […] become a highly centralized system that places an increasing amount of trust in a small number of large entities. Any centralization of bitcoin network hash power should be of concern as it erodes the trustless model of the network,” TokenAnalyst, a cryptocurrency research firm, says.
Its strong language is consistent with the folk theorem that bitcoin (BTC) relies on the decentralization of hash power to be secure. But is it also correct?
Concentration is inevitable
It is certainly true that one miner with 100 percent of the hash power would have more control over the network than miners with 10 percent hash power. A majority miner can reorganize the blockchain to double-spend his own transactions or even block any unwanted transactions from making it into the blockchain.
If a majority miner can misbehave and hurt users, does that mean users should try whatever they can to prevent centralization in hash power?
Former Bitcoin Core developer Greg Maxwell sees that as a futile task, given that “[an attack] doesn’t even depend on a single person having too much of the hash power. The attack would work just as well if there were 100 people each with an equal amount and a majority of them colluded to dishonestly override the result.”
This insight is important because it shows we can not rule out concentration, ever. Miners can always collude with each other and act as a single entity. It would be ludicrous to trust a system that can collapse after a single conference call – that’s all it would take to coordinate the behavior of the largest mining pools. And if miners…