Bitcoin Mining Centralization May Threaten Currency’s Security

Bitcoin mining centralization is a point of concern for users as a concentration of the bitcoin mining capacity may allow double spend attacks. The concern comes as mining firms have rapidly increased in size due to the acquisition of multiple firms. This trend may continue to the point were one company had a majority of the mining capability, therefore having control over the system’s transactions and verifications. At this point, the company with majority control would be able to game the system, stealing money from users. Previously, GHash.io was able to take over more than 51 percent of mining in the summer of 2014. While this did not result in a double spend, massive selloffs of bitcoin did occur, which drove the price of bitcoin down.

In response to the centralization problem economists and bitcoin enthusiasts search for solutions. While some have already suggested that the solution lies in limiting the percentage of mining operations which can be controlled by a single company, no one have found viable ways to implement this plan. The most promising solution to centralization is the creation of mining pools. In this system mining operations mitigate costs by working together but limit the amount of mining done by any single miner. This works as a self regulating system as miners operate to maximize their profits without destabilizing the whole system.

While the mining pool system is the systems that is currently in operation, the long run application of the system is questionable. The incentive for miners to work together in this way may not exist as the bitcoin mining system changes. For this reason, a more permanent solution would be necessary to avoid centralization. As miners and other interested parties search for solutions, the trade off may be the usability of bitcoin in the mainstream.

 

Read More – The Economics of Bitcoin Centralization (Bitcoinist, Evan Faggart)

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Originally from Gaithersburg, Maryland, Millan is a senior at the George Washington University studying Biological Anthropology.

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