Menu

Categories:

Hot right now:

Follow on:

Coinsurges provides coverage of fintech, blockchain, and Bitcoin, delivering the most recent news and analyses on the future of money. Stay up-to-date with live prices, charts, and trading options for the top exchanges. Keep track of the day's top cryptocurrency gainers and losers, as well as which coins have experienced gains and losses in the past 24 hours.
Trust Coinsurges as your go-to source for all news and updates in the industry.

Menu

Categories:

Hot right now:

Follow on:

Coinsurges provides coverage of fintech, blockchain, and Bitcoin, delivering the most recent news and analyses on the future of money. Stay up-to-date with live prices, charts, and trading options for the top exchanges. Keep track of the day's top cryptocurrency gainers and losers, as well as which coins have experienced gains and losses in the past 24 hours.
Trust Coinsurges as your go-to source for all news and updates in the industry.

Is Bitcoin Mining ‘Dangerously Centralised’? What New Research Shows

Share This Post

Recent findings from BitMEX Research have reignited concerns about the centralization of Bitcoin mining. Their study, which cites insights from Bitcoin analyst Alex Bergeron, points out that a single entity now controls the Coinbase outputs for approximately 47% of the network hashrate—a significant concentration that suggests a shift toward oligopolistic tendencies within the Bitcoin mining ecosystem.

Bergeron, who has previously addressed issues of centralization, highlights that this trend may be driven by mining pools altering their payout schemes to reduce variance. This adjustment makes such pools more attractive and competitively dominant. Bergeron’s observations are supported by data from @mononautical on Twitter, showing that prominent mining pools like AntPool, F2Pool, and Binance Pool have their Coinbase addresses managed by a single custodian.

Why The Bitcoin Mining Network Is In A Poor State

The BitMEX Research team expanded on these insights by exploring the economic implications of this centralization. According to their report, “Only around $20 million of capital might be required to undertake such variance smoothing operations, a relatively small amount given the vast scale of the Bitcoin mining industry.” This finding suggests that the centralization issue might not stem primarily from economic incentives related to revenue variance.

To substantiate their findings, BitMEX Research constructed a model to simulate the operations of a large-scale Bitcoin mining pool with the intent of eliminating payout variance. The model, although simplified, uses basic probability and financial theories to forecast the outcomes of daily mining operations, assessing the sustainability of a reserve fund under varying levels of network hashrate participation.

“Our simulations show that with an initial reserve fund of 300 to 400 Bitcoins, a mining operation can remain economically viable over a year, even if adverse conditions prevail,” the study elaborates. The results indicate that while a larger pool with a significant share of the hashrate would require a larger fund to maintain operations, the overall capital needed is still within reasonable limits for major players in the industry.

Despite these financial insights, the implications of such centralized control are vast, touching on issues beyond mere economic mechanics. The control of nearly half of the network’s hashrate by one entity not only challenges the principle of decentralization that is central to Bitcoin’s ethos but also introduces significant risks related to network security, potential price manipulation, and the integrity of transaction verification processes.

The report provokes a critical discussion within the Bitcoin community, shifting focus from the technical feasibility of managing large-scale mining operations to the broader strategic and philosophical challenges posed by such centralization.

“This level of centralization can act as a double-edged sword. While it may contribute to economic efficiency and stability in mining operations, it also places an enormous amount of power in the hands of a few, potentially undermining the trust and decentralized nature that Bitcoin was built upon,” the BitMEX Research concludes.

The Community Needs To Act Now

As the debate unfolds, it becomes clear that the community needs to consider more than just the economic and operational implications. There is a growing call for structural reforms within the mining sector, aimed at preventing excessive centralization and ensuring the long-term health and integrity of the Bitcoin network.

Addressing these challenges requires a concerted effort from all stakeholders, including miners, developers, and regulatory bodies, to devise and implement mechanisms that maintain competitive fairness and uphold the decentralized foundation of Bitcoin.

“The Bitcoin mining network appears to be in a pretty poor and centralized shape, with a single entity custodying the Coinbase output funds for almost 50% of the global hashrate. […] It is clear that this is a real problem,” BitMEX Research concludes.

However, the firm also presents a silver lining:

The positive news is that the level of capital a pool operator needs to smooth out the impact of luck is not as large as some people might think, perhaps around $20 million to $40 million. Therefore while the issue is a problem, it may not be critical. It does not feel that this luck issue is therefore the only fundamental long term cause of this apparent monopolistic structure.

At press time, BTC traded at $62,889.

Bitcoin price

Read Entire Article
spot_img
- Advertisement -spot_img

Related Posts

Bitcoin Struggles Below $80K as Weekend Sell-Off Wipes Out $160B in Value 

While bitcoin maintained its footing on Friday, hovering above the $84,000 threshold, the digital currency descended below the $80,000 mark by Sunday, erasing $4,600 in value over the course of the

Ethereum Supply On Exchanges Plummets – Is A Supply Squeeze Coming?

Ethereum is down 55% from its December high, reflecting the broader weakness that has hit the crypto market amid escalating global uncertainty Much of the recent pressure comes from US President

Ethereum market dominance sinks to a five-year low: Can the ‘world computer’ reverse its fortunes?

Ethereum market dominance has reached a five-year low, dropping to below 94% at the time of writing The number-two crypto faces mounting challenges in maintaining its position as the King of altcoins

BTC Slips to $78.6K in Major Sunday Drop

By 3 pm ET on April 6, 2025, bitcoin ( BTC) had dipped further to $78,639, deepening its retreat from recent peaks and indicating a market still gripped by caution This added pullback builds on the

David Sacks says Meta’s open-source Llama 4 puts U.S. in the lead in AI race

Meta’s launch of two artificial intelligence (AI) Llama 4 models has positioned the US as a leader in the AI race, David Sacks, the US AI and crypto czar, said in an X post on Saturday He wrote:

Crypto Chill: Bitcoin Dips 2.6% Under $81K Ahead of Wall Street’s Next Move

Bitcoin’s price receded by 26% today, dipping below the $81,000 mark in a subtle yet thought-provoking shift This pullback may serve as a cryptic overture to Monday’s Wall Street open, stirring