Bitmain, the largest ASIC manufacturer and Bitcoin (BTC) Miners have so far taken up almost 42% of the network's hashrate in recent days.
Bitmain, Allies And Algorithms
BTC.com reports that they have found 27.2% of all bitcoin blocks in the last week. Antpool has found 14.6%. Both are owned by Bitmain. Antpool is also operated by Bitmain, while BTC.com has its own operations, which according to Bitmain are independent, but BTC.com is exclusively owned by Bitmain. This makes it 42% combined of all network blocks.
Bitmain has also more hashrate that it is currently not using to mine Bitcoin, but instead, they mine Bitcoin Cash (BCH). Both BTC and BCH share the same algorithm and therefore the same mining procedure can be used to exploit either of these two cryptocurrencies.
Antpool now holds 10.6% of BCH's network share, while BTC.com holds 10.4%, making it 21% of all BCH blocks combined over the past week.
Hashrate Coverage, Double Spend And 51% Attack
It is much easier to exploit BCH than Bitcoin. So if all that hashrate were directed to BTC, it wouldn't give them an extra 20%, but only about 3%. 45% of the total hashrate is under Bitmain’s control. This is very close to 51% on the network, being able to attack the network.
There is no need to fear a 51% coverage on the network. Other mining operators have gained more than 51% of the hashrate of the bitcoin network before. The most famous event was in 2014, when Ghash managed to win up to 55% of the total hashrate. That led to public calls for the miners to boycott Ghash, and they finally did, being irrelevant now, but not before a dishonest employee within Ghash spent twice as much as a small amount of BTC.
Some people say Bitmain is different. Because, while Ghash was a pool where many small miners gathered to effectively become a miner, Bitmain is one miner. They have their own mining farms for which they produce the hardware, so there wouldn't be any small miners coming out of the pool.
However, apart from the danger of a bad move in network transactions, this could also pose problems for bitcoin, which has no plans to move away from Proof-of-Work (PoW). It's not that Bitmain has any reason to abuse the network, but rather because they could be victims of hacking, or someone within the company could be acting badly with that amount of coverage.
The modality that Bitmain implements as a system that is divided into two somewhat independent groups could be protected from this, but as both would be under the same ownership, there could be some room for intentional, unintentional or coercive abuse.
If that were to happen, they would not be able to change the property of others, except for those parties who are conducting transactions during a double-dealing attack. You could only spend twice as much as your own bitcoins, but anyone else doing business at that time would also see a change in ownership as the confirmed transactions went unconfirmed.
Therefore, if individuals are closer to 51%, they would do well to expect more than six confirmations in terms of significant amounts. A temporary solution in such situations could be a change in the PoW algorithm. This, however, could significantly reduce the security of the bitcoin network and even potentially increase its chances of being attacked by 51%, as happened with Monero (XMR) after they changed their algorithm.
Forecasts And Alternatives
Mining is a very risky business that requires an initial investment with two parameters, one inevitable and the other unpredictable:
- The more miners start mining, the more their shares of the rewards is reduced.
- How much would the price of bitcoin cost while you are mining?.
Bitcoin's mining hardware (hashrate) has tripled since December, even if the price has dropped 3 times since that time. Therefore, it is now much more expensive to extract a bitcoin than it was six months ago, while at the same time an extracted bitcoin coin is worth much less.
The best plan for now is for Bitmain to start selling more of its ASICs by lowering its prices. What seems temporary and cyclical. Because in the current distribution it seems that some miners are at risk of going bankrupt. This is not entirely new compared to the 2014 recession, where many miners went bankrupt, including some big miners.
At some point the miners won't be able to afford to pay the energy costs or keep adding more and more hardware as the old hardware becomes useless due to the ever-increasing hashrate difficulty. Which would end up stopping production.
Some miners, however, like Bitmain, have lower costs, presumably because they manufacture the mining hardware themselves. So while other miners are trying to survive, as in the case of Bitfury which has fallen to 2%, Bitmain is beginning to gain more and more hashrate to the point that they are now approaching 51%.
Hashrate, Production And Costs
The hashrate instead of reacting according to the action of prices, can always be seen as detached from it. This should change for the bitcoin network because the increase in new hardware should in itself put pressure on the price, as the new, barely profitable miners need to be sold all to cover costs.
The hashrate should start to fall a bit, as it did between 2014 and 2015, because it may not be profitable for the miners to have at least some of their hardware still running. It is during these periods that a miner tends to begin to dominate because no new miners have yet entered, while the old ones are already on their way out.
This situation is temporary because at some point the miners will stop selling themselves and work will begin on the reserves, to stop the pressure of price decreases.
Looking carefully, this may happen again very soon, although the increase in hashrate somewhat contradicts that suggestion. Bitcoin will have to prepare for a potential and predictable scenario in which a miner like Bitmain will soon dominate, especially if now the growing demand for Lightning Network begins.
All these possible scenarios will end up making the ecosystem more complex or better. However, the community should always be alert to the possible harm that a dominant miner may cause intentionally, involuntarily or perhaps because it has been coerced.