Big Mining Firms Pose an Existential Threat to Satoshi Nakamoto’s Bitcoin

Big Mining Firms Pose an Existential Threat to Satoshi Nakamoto’s Bitcoin

In May, big Bitcoin mining firms namely AntPool and Foundry USA gained control of more than 50% hashrate. Such an event can become a major issue for Bitcoin investors in the near term. This event means that Bitcoin mining control has been constricted to a few big players. 

Threat to Bitcoin’s Decentralization

As a result, some of the top mining firms have seized complete control of the Bitcoin network via hash rate contribution.

It could spell big trouble and has the potential to post an existential threat to Bitcoin. The ensuing problem is resulted from a technical error left in Bitcoin design by its mysterious maker Satoshi Nakamoto.

To make matters worse, most of the Bitcoin miners have gravitated towards centralization. At the start of this project, miners were able to mine using CPUs or personal computers due to limited hash rate.

However, with the progression of demand and trading volume rise promoted miners to switch to GPUS around 2010 and progressed towards application-specific integrated circuits (ASICs) mining units by 2012.

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ASICs enabled the formation of formal Bitcoin mining firms that owned hundreds or thousands of mining rigs in their warehouses. By design, the miners who are able to generate a large amount of hash rate are able to mine a bigger percentage of Bitcoin.

Few Bitcoin Mining Firms Control More Than 50% Hashrate

Bitcoin design awards greater number of blocks to miners with an ability to generate more hash rate. It means that bigger mining firms are able to capture the majority of Bitcoin blocks and new Bitcoin supply.

Meanwhile, the small-scale miners are promoted to work with mining pools in order to combine their hash rates with other similar firms with their native ASICs. As a result, small miners are able to generate greater hash rate but the block rewards are distributed among participants in the proportion of their contribution.

Bitcoin is primarily a decentralized network that has the ability to operate without any centralized authority. However, the presence of miners incorporates a certain degree of centralization to the Bitcoin network.

In this context, Bitcoin mining pools are able to leverage the economy of scale and perform operations with greater efficiency. It is important to note that on account of the technical infrastructure of the Bitcoin network if a miner has gained more than 50% hash rate they can launch a 51% attack.

Regardless of the possibility, some mining pools have managed to control a majority portion of global hash rate generation. As a result, small and medium miners have to work in tandem with pools in order to reduce costs and increase profits. This situation has led Bitcoin to become more and more centralized and open to censorship.

Some of the top mining firms such as AntPool and Foundry USA require mining applicants to undergo KYC protocols before joining.

Transactions Censorship

As of May, AntPool and Foundry USA hash rate contribution have reached around 56.4% which has granted these firms to implement transaction censorship at their discretion.

At this level, these firms have the option to refuse to confirm required blocks at will. The issue is not new as some mining firms such as F2Pools are already performing transaction censorship.

One such example was highlighted by Bitcoin developer 0xB10C who noted that F2Pool failed to verify 6 transactions that were sanctioned by the Office of Foreign Assets Control (OFEC). At the same time, the developer noticed that these transactions were intentionally filtered under the directions of a government agency.

Chun Wang responded to the assertion on X noting that it should not be surprising when if the mining firm refused to confirm illegal transactions originated from dictators and terrorist groups. However, he deleted the post later.

Wang later posted that F2Pool is going to disable the transaction filtering patch until the crypto community issues a conclusive consensus on the matter.

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