This is NOT what Satoshi Wanted..
New Data Suggests..
That China controls a vast majority of the total Bitcoin hashrate. The hashrate is another term for the net pool of computational power being dedicated to the blockchain by the miners. As discussed in our last post, there are a lot of factors that contribute to the profitability of a mining operation. If you missed that one, here is a quick summary.
- Cost of electricity for mining devices.
- Storage of the technology.
- Heating/cooling problems.
It all comes down to their marginal cost of production, and how little they have to pay in order to produce one Bitcoin. So, if we are seeing natural skews towards centralized mining, then there must be an advantage/reason why it is so prevalent in these regions.
One single province in China contributes 54% of the total network hashrate. Sichuan is considered the hub for Bitcoin mining. This region has access to cheap electricity generated through hydro dams. Its interesting to note that internal figureheads in the province state that the total contribution to hashrate is much closer to 70%.
This unequal distribution of hashrate has major consequences for the cryptocurrency. Bitcoin is based on consensus, and if there is a central entity controlling the consensus, then it has lost its vital decentralization.
The blockchain ledger is a history of the transactions which have taken place in the past, the wallet balances, and a "snapshot" of the activities. All the people in the network agree on which is correct based on what version has >50.45% distribution. This innate security feature has a weakness when there are massive mining operations like in Sichuan.
Although we haven't seen it in Bitcoin, we have seen 51% attacks on other blockchains. In any scenario where one individual controls 51% of the hashrate, they can submit a fraudulent ledger and it will get accepted by the rest of the network. Its this idea of network consensus controlled by hashrate majority that can introduce fraudulent transactions.
In summary: if an individual or collective agency controls 51% of the hashrate dedicated to any network, they can have sole control over the ledger.
Bitcoin is turning green?
One of the fundamental weaknesses of PoW projects is the intense demand for electricity. Every region on earth has a different method of power generation, and some are more environmentally friendly then others! Bitcoin exerts an interesting demand on our planet, and we have some data to investigate how often renewable resources are used..
Interesting to note that 73% of total Bitcoin mining comes from renewable energy sources like wind, solar or hydro. Within the context of global warming and carbon consumption, this is great to see! Conversely, this means that 27% is from fossil fuel derived sources. This trend to renewable resources could increase profit margins as some methods have intense capital requirement, but are cheaper to operate thereafter (ex: solar panel fueled mining operation).
Implications for the future..
I think everyone can agree that this is against what Satoshi wanted. Centralized mining operations open the chain to vulnerabilities if people can control >51% of the network. We haven't seen any attack resembling that, but the idea is not impossible. Collective action from individuals in China would have large affects on the rest of the world.
As time goes on, I hope that BTC hashrate diversifies. The halving is eight days out, and this will exert pressure on the lower profit mining operations. With this external pressure being exerted soon, I think we will see a shift in the distribution of mining operations.