Threats to Decentralization – The Concentration of Mining Power in the Bitcoin Network
The decentralized nature of the Bitcoin network is a fundamental feature that ensures no single entity or group wields excessive power over the network.
According to recent BTC.com data, however, this balance is under threat from only two mining companies, Foundry USA and AntPool, which currently control over 51% of the network’s hash rate. This concentration of power raises concerns about the decentralization and security of the Bitcoin network.
The mining industry has faced numerous challenges in recent years, including declining block rewards and rising electricity costs, prompting many miners to sell their tokens.
As a result, industry consolidation has occurred, with larger companies acquiring smaller operations. The planned halving of the Bitcoin block reward in mid-2024 is also expected to reduce margins and drive out smaller miners.
In his white paper, Satoshi Nakamoto, the creator of Bitcoin, predicted that as the network grows, it will be left to specialists with specialized server farms. He also warned that a small number of entities could gain undue power over the network as a result of this.
To address these issues, the mining industry must work to decentralize mining power on the network, increase transparency and accountability, and promote industry diversity.
By implementing decentralized mining pools, encouraging a diverse range of miners, and increasing mining companies’ transparency and accountability, the mining industry can help ensure the Bitcoin network remains decentralized and secure for all users.
The community can also help by supporting decentralized mining pools and promoting new technologies like PoS, which can help ensure the network’s integrity and security for all users.
Finally, the community must be aware of these issues and actively work toward solutions. Instead of concentrating mining power in a few hands, the community can contribute to the Bitcoin network’s integrity, as well as its decentralization and security for all users, by supporting decentralized mining pools.
Furthermore, the development and implementation of new technologies such as proof-of-stake can contribute to the decentralization of the mining industry.
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