The Bitcoin mining process is what truly separates the peer-to-peer digital cash system from other forms of online payment. Instead of having a centralized third party who processes transactions, Bitcoin uses a number of dynamic, potentially-anonymous entities to move money around the network.
It is this removal of a trusted third party that allows Bitcoin to operate in a permissionless, uncontrollable, and censorship-resistant manner. All of Bitcoin’s differentiating use cases are built on top of this base feature.
While the use of proof-of-work (PoW) to solve the double spending problem was Satoshi Nakamoto’s key breakthrough with Bitcoin, it is also often viewed as one of the weakest points of the system in terms of how it can be attacked.
Someone who controls 51% of the computing power pointed at the Bitcoin network is able to choose which transactions can be processed. Someone who controls the majority of the network hashrate can also reorganize the history of network transactions in a malicious attempt to spend the same money twice.
That said, gaining such a large percentage of the network hashrate would be no easy task, seeing as current estimates put the network hashrate at around 70 million terahashes per second.
These difficulties associated with shutting down or regulating the Bitcoin network are why one economist has stated the best way to kill Bitcoin may be to simply try to compete with it. Abra CEO Bill Barhydt has also pointed out that banning Bitcoin may be difficult from a legal perspective, at least in the United States.
At last month’s Bitcoin 2019 conference in San Francisco, Bitcoin mining industry veteran Marco Streng, who is the CEO of Genesis Mining, claimed he is quite alarmed at the current level of centralization found in Bitcoin mining. That said, a possible solution for this issue may soon become available by way of a Bitcoin mining protocol upgrade.
The Alarming State of Bitcoin Mining Centralization
During the early portion of a panel on the future of Bitcoin mining at the Bitcoin 2019 conference, Streng made it clear that he does not view the current level of centralization in Bitcoin mining as acceptable.
“I think it’s actually quite alarming,” said Streng. “And it’s very good that we’re talking about that because we are seeing a radical, innate drive that basically originates from the competitive advantage that large-scale mining operators have compared to the home miners.”
While Satoshi’s original vision of the mining process involved the concept of one vote per computer, that optimistic vision was thrown out rather early in Bitcoin’s history. By 2012, hardware devices built for the specific purpose of mining Bitcoin had been developed, and Bitcoin mining was well on its way towards specialization and industrialization.
As Streng pointed out during the panel, economies of scale, access to the cheapest electricity in the world, and optimizations made by the largest players at the hardware level make it difficult for the average hobbyist with a few mining machines in their basement to compete.
“I think this is really an alarming thing,” Streng reiterated. “I mean, it’s great to see the community efforts like BetterHash, and [longtime Bitcoin developer Matt Corallo] is driving these efforts. I think it’s really a serious problem, and in my opinion, there’s too [little] priority from the community put on that. But it’s also not a very easy thing to solve because there is this innate advantage that the large players have.”
Corallo was also on stage with Streng, but he disagreed with the level of concern shared by the Genesis Mining CEO. While Corallo acknowledged miners can gain an advantage by obtaining access to the cheapest electricity in the world, he also pointed out that the availability of cheap power in chunks of 10 to 100 megawatts is somewhat limited and these sorts of setups won’t necessarily account for a large chunk of the overall network hashrate.
“It is still a relatively decentralized [system] when you look at mining itself. Now, of course, when you look at pools, this is a different story. But when you look at mining itself, we do have hundreds of players. Not really anyone has more than a percent or two [of the network hashrate] — up to five in the very absolute largest cases,” explained Corallo.
The longtime Bitcoin developer added that there are some possible concerns over the level of optimization offered by industrialized Bitcoin mining centers, but for now, he does not share the level of concern shared by Streng.
A New Bitcoin Mining Protocol
The third panelist on stage with Streng, Corallo, and moderator Adam Braidman of BRD was Braiins CEO Jan Čapek. Last week, Braiins announced a redesigned mining protocol as part of a new, open, and transparent Bitcoin mining stack.
A key aspect of this new mining protocol, known as Stratum v2, is that it allows individual miners, rather than the mining pool operators, choose which transactions go into mined blocks. As Corallo indicated in his remarks during the panel discussion, the level of centralization found with mining pools is much worse than it is with the actual miners, so moving the process of choosing transactions from the pools to the individual miners should be a boon for decentralization.
According to data from BTC.com, it would currently only take collusion from four mining pools to successfully pull off some sort of mining-related attack such as transaction censorship or a blockchain reorganization. To make matters worse, two of those pools are owned and operated by the same company, Bitmain.
In terms of moving transaction selection to the miners, Braiins built on Corallo’s BetterHash project, which he has been developing over the past couple of years.
Of course, for the Bitcoin network to gain anything out of all of this work, miners will need to adopt this new software. Having said that, Braiins seem confident that this adoption will occur.
Stratum v2 includes a variety of security improvements for miners, which will likely be the main sales pitch.
“At the end of the day, it is really a matter of nailing the new standard in a way so that it addresses most, if not all the needs,” said a Braiins spokesperson when reached for comment. “That is precisely why we’are inviting the whole community to participate. We suggest Stratum v2 addresses all the pitfalls of the current protocol so there is no reason for the network not to go with this. Large miners are likely to push pools to implement the new protocol for multiple reasons. The chance to have a secure protocol that is more efficient and optionally allows to work with telemetry data is definitely one of the key motivations.”
In terms of potential roadblocks facing this new mining protocol, Braiins pointed to the fluctuations in the Bitcoin price that can alter miners’ short-term priorities. Notably, Pantera CEO Dan Morehead recently explained why there is a “good shot” that Bitcoin could reach $42,000 by the end of 2019. According to a report from digital asset research firm Delphi Digital, retail investor enthusiasm appears to have returned, so Bitcoin’s recent price volatility may stick around for awhile.
Additionally, manufacturers of Bitcoin mining equipment need to adopt the new binary protocol included in the stack.
“Hand in hand with the protocol initiative we are also upgrading our open source mining firmware initiative (Braiins OS) to provide first class support for this protocol and speed up this process a bit,” said the Braiins spokesperson.
The ability for miners to choose the transactions to be included in blocks is an optional feature, so adoption of this new protocol does not necessarily mean transaction selection will be taken out of the hands of mining pool operators anytime soon.
“While we know some large miners have been requesting this feature, we don’t know how many in total find it critical. Either way, it’s completely optional so should this not be relevant for someone, they can leave the transaction selection up to the pool,” said the Braiins spokesperson.
At the end of the day, it will be the responsibility of individual miners to take responsibility for transaction selection and take it out of the hands of the more centralized mining pool industry.