The question of decentralization is closely related to crypto currency and blockchain as it is one of the main goal of those technologies. However, at different periods of time during the last decade, this vision has been challenged by several actors such as mining hardware provider, mining pools or other entities.
Decentralization, n. The security assumption that a nineteen year old in Hangzhou and someone who is maybe in the UK, and maybe not, have not yet decided to collude with each other.
Decentralization is one of the main aspects of the blockchain technology and for sure the most important one as it was set by Satoshi Nakamoto, the founder of Bitcoin. It’s not a coincidence that the blockchain technology was created during the 2008/2010 financial crisis during which distrust in the financial institutions was at its peak. The Bitcoin protocol is an answer to the ubiquity of banks and other financial institutions in the everyday life of the people. However, tricky questions arose quickly and came to challenge the very core idea behind this revolution.
One of the biggest potential issue of a proof of work blockchain is the possibility of 51% attacks. Basically, it’s a situation where a stakeholder control more than 51% of the hash power of the blockchain. In this situation, this actor would potentially be able to rewrite the blockchain for his own purpose and could for instance transfer the ownership of a token or double spend some token.
This is a type of fraud that is specific to cryptocurrencies, when a crypto asset can be spent more than once. Simply imagine that you make a transaction and send money to a certain address. It would appear on the other party’s wallet and at the same time remain in your own wallet. More than just being an unfair process, it would have bad effects on the value and credibility of the cryptocurrency. That is why Bitcoin protocol had already, in 2009, a system that would prevent double spend frauds. Here’s a graph that sums up how Bitcoin protocol handles the double spend problem. The orignal article can be found here on CoinSutra
As security is at the center of all blockchain protocol, it is of tremendous importance that this kind of situation is avoided. The issue of 51% attack became widely known in 2013 when ghash.io became the largest Bitcoin pool and reach 51% of the hashing power of the network several time.
You also will find below a very interesting article about mining process which dates back to 2014 and that goes deep into the subject and gives very useful insights to understand what is at stake.
Since this period, the situation is precisely monitored by most of the member of the network in order to prevent this situation from happening once again.
Another widely known issue that challenge decentralized architecture is ASICS mining. As the mining industry evolved, several companies developed dedicated computer to mine cryptocurrencies, starting with Bitcoin in 2013. Those computers, called ASICS for application specific integrated circuits, have a significant advantage against more handwork server. Consequently, ASICS tends to quickly gain considerable market share and completely stifle GPU mining. This is another example of centralization in the world of decentralization, because companies that build ASICS are not very numerous, there are only a few actors in the field.
One such company is Bitmain which at one point had 80% of market share of the Bitcoin ASICS industry. That posed a threat to the integrity of the network because Bitmain remain basically in control of the machine even after it has sold it. At one point, Bitmain was at the center of a scandal because of using the ASICS it has sold to mine for his own purpose with some tricks such as mining a few minutes when the machine is setting up.
As you understood, Bitmain is one of the main hardware mining providers in the world and was especially influential from 2015 to 2018. It’s also quite important to note that Bitmain is behind two of the biggest Bitcoin mining pool: BTC.com and Antpool. It’s also important to note that Bitmain was very influential in the creation of Bitcoin Cash by providing huge amount of hash power to support the network. All those facts highlight the influence of Bitmain on the Bitcoin network.
However, its grip has faded recently because of harder competition and strategic choice. Bitmain is facing a dire situation recently that leads Jihan Wu, founder and CEO, to resign.
It’s a proposition (EIP 1057) that will be included in the next hard fork of the Ethereum network called Istanbul. The goal is to make the Ethereum blockchain ASICS resistant. For a year, ASICS miner started disrupting the mining activity on the Ethereum blockchain. The first of those ASICS was the E3 made by… Bitmain!
In order to secure the blockchain and avoid the trap of the Bitcoin network, several people put forward proposition to make the Ethereum network ASICS resistant. This effort leads to ProgPow. It’s a new algorithm that will frame the network, one that will make unusable all the ASICS developed for the Ethereum network. It will also have an impact on the mining capacity of GPU’s but the consequence is difficult to calculate for now. We’ll have to wait for the release on the main net to evaluate precisely the impact. Here is the detail of all the EIP planned in Istanbul.
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I’ve created Cruxpool with the idea of making crypto-mining available to everybody. I sometimes share here my passion about blockchain and cryptocurrencies.