5 Chinese-Based Entities Control 49.9% of Bitcoin (BTC) Hash Rate: TokenAnalyst Report
According to the latest report of TokenAnalyst, Bitcoin is more centralized than ever before.
Bitcoin a decentralized and nearly trustless system to transfer and safely store value. But in 2020, it has started to
“become a highly centralized system that places an increasing amount of trust in a small number of large entities.”
The report states that just like a few large cryptocurrency exchanges dominate the crypto landscape, the mining sector is now also dominated by a small number of entities with a power base in China.
The metric the firm uses is calculated by identifying the addresses controlled by mining entities and then identifying the block they mined.
As awareness and adoption increase, so does the competition which has many smaller participants become unprofitable and exiting the market. The individual and small miners have been replaced by large operations that created groups by forming partnerships.
One entity to rule ‘em all
Today, five mining entities viz. BTC.com, AntPool, F2Pool, BTC.top, and ViaBTC — all of which are based in China and available via BirDeer — controls 49.9% of all computing power on the network. BitDeer lets consumers rent mining power without buying or setting up mining hardware.
“On 27th January 2020 these 5 mining entities controlled 49.9% of the hashrate of the bitcoin network,” states the report.
It basically acts as the connective link between to pull their resources and share freshly mined bitcoin as rewards.
“Once a consumer has paid BitDeer for a plan, they can assign that hashrate to any partnership mining pool,” TokenAnalyst said in the report. “Does it really make a difference anymore? What is to stop the entities merging into a single large entity that maintains a degree of separation” only through address structure.
Eroding the trustless model of the network
Over the decade, mining has changed dramatically, earlier GPU rigs were used that shifted to FPGA and ASIC miners. Eventually, miners formed mining pools as mining a block became difficult.
And now today’s large-scale cloud mining operations have lowered the barriers to entry that allows an individual to purchase hash rate plans without the need to expand on capital, complicated set-up, or maintenance.
Although a good thing, the centralization of bitcoin network hash power is a concerning point as “it erodes the trustless model of the network.”