Monopoly-Resistant Mining? Paper Claims Bitcoin Centralization Fears Overblown

A new paper suggests bitcoin mining may naturally resist centralization – a finding with potential implications for the long simmering scaling debate.

Sep 1, 2017 at 5:05 p.m. UTC
Updated Sep 13, 2021 at 6:53 a.m. UTC

Bitcoin might be naturally resistant to mining monopolies – or so claims a new research paper authored by University of Siena professor of economics, Nicola Dimitri.

At a high level, the paper contends "the intrinsic structure of the mining activity seems to prevent the formation of a monopoly," a finding that could ease some of the concerns in an industry currently grappling with whether miners have too much power.

Published in Ledger, a journal that covers blockchain research exclusively, the paper explains in depth how, in an equilibrium, miners don't necessarily leave the system just because other miners are able to profit more by cutting their costs somehow.

According to Peter Rizun, co-founder and co-managing editor of Ledger, the conclusion is quite "important" for the cryptocurrency community.

In an email, Rizun, who is also the chief scientist for the alternative bitcoin implementation, Bitcoin Unlimited, told CoinDesk:

"The mindset of much of the community today is that 'it's critical that all miners have essentially the same profitability hash-per-hash, otherwise the most profitable miner will continue to grow until he controls nearly all the hash power.'"

The possibility of mining power centralizing has been particularly worrisome to developers.

For one, at least one mining pool is alleged to have used a more efficient way of mining – known as ASICBoost – to increase profits, which some think could force other miners to leave, said Rizun. And two, many believe slower block propagation benefits larger miners, again pushing out smaller firms, he continued.

But, he contends the paper adds more game-theoretical color as to what incentivizes miners and establishes that these things don't necessarily negatively affect users.

How much control?

It's not only developers that are concerned, though.

The cryptocurrency community at large often worries about how much control miners have, or could theoretically have in certain conditions, displaying a kind of distrust that's built up between groups, and that was especially apparent in recent bitcoin scaling debates.

Some users worry miners have too much influence over technical decision-making, for example.

And that was highlighted by one of Rizun's Medium posts in March, which many readers interpreted as arguing that miners could force users to move from bitcoin to Bitcoin Unlimited.

As to be expected the post sparked controversy, getting comments like bitcoin contributor Meni Rosenfield's: "This is a disgrace and stands against everything bitcoin represents."

Too early to tell

Being a particularly controversial character, it's possible developers will find fault with Rizun's interpretation of the study. Even its author, Dimitri notes it might be too early to make broad assumptions.

"In its simplicity the model is omitting a number of elements, which could be investigated in future research," he states in the paper.

And Dimitri goes on to admit that other variables, particularly those that have been contentious in bitcoin's debates to date, could change the calculations.

He concludes the paper:

"Among them the current debate and interest on the block size, which may affect the main conclusions of the paper, at least in so far as the number of potentially active miners is concerned."

Monopoly image via Shutterstock

The Festival for the Decentralized World
Thursday - Sunday, June 9-12, 2022
Austin, Texas
Save a Seat Now

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Trending

1
CoinDesk - Unknown
5 Key Takeaways From a16z's State of Crypto Report

The venture firm is extremely bullish on Web 3.

The venture firm is extremely bullish on Web 3.

CoinDesk - Unknown
2
CoinDesk - Unknown
Regulators Are Paying Attention to UST

The collapse of terraUSD (UST) is algorithmic stablecoins’ Libra moment.

The collapse of terraUSD (UST) is algorithmic stablecoins’ Libra moment.

CoinDesk - Unknown
3
CoinDesk - Unknown
San Francisco NFL Player Alex Barrett Taking His Salary in Bitcoin

The most valuable crypto stories for Thursday, May 20, 2022.

The most valuable crypto stories for Thursday, May 20, 2022.

CoinDesk - Unknown
4
CoinDesk - Unknown
Justin Sun Still Thinks Algorithmic Stablecoins Are a Good Idea

The crypto mogul also said LUNA and UST might make good "meme coins," he said on CoinDesk TV’s “First Mover.”

The crypto mogul also said LUNA and UST might make good "meme coins," he said on CoinDesk TV’s “First Mover.”

CoinDesk - Unknown