How to Further Decentralize the Hashrate

After the China ban, are there too many miners in North America?

Introduction

An important topic that was discussed on another mining panel during the Bitcoin2022 conference was “How to further decentralize the hashrate?” An important characteristic of bitcoin is that it is decentralized in all aspects. From bitcoin users, to developers, to node runners, and especially amongst miners.

The dangers of centralization amongst miners has been a hot topic when a majority of hashrates were coming out of China. But ever since the final China ban on mining in 2021, a lot of miners took their operations outside and into North America. So now is there too much hashrates coming out of North America?

A panelist consisting of the below industry leaders took the time to chat about this burning question.

Whit Gibbs CEO, Compass Mining

Bob Burnett CEO, Barefoot Mining

Stephen Barbour Master of Hash

Ryan Condron CEO, Titan

Difference between decentralization and distributed

To start off, there are a few factors to consider when discussing “decentralization”:

  • ASIC manufacturer
  • Pool Ownership
  • Mining farm ownership
  • Ownership of energy

Also, it is important to note the differences between decentralization and distribution. Distributed, in the context of hashrates, can mean hashrates being distributed in different geographic areas. Whether this is referring to hashrates being spread out in different areas of a country or even different areas of a state. As long as hashrates aren’t in one specific location, then it is by definition distributed. But decentralization takes it to a whole different level. By being decentralized, the ownership factor takes precedence over the location. Ownership of hashrates, mining farms, and mining pools can determine if hashrates are truly decentralized. If we look at it from the context of pools, well one can make the argument that the top 5 major mining pools own a majority of hashrates. And it’s this factor that we need to worry about.

Is mining centralized now?

Burnett is personally worried about centralization in the US as more and more mega-farms start to come online. As mentioned briefly before, China decided to ban all bitcoin miners out of the country in mid-2021. This set off a huge exodus of bitcoin miners out of the mining-rich region of Sichuan. Many of them went to Iceland, Russia, Kazakhstan, and even Southeast Asia. But a majority of them went to North America due to favorable local regulations and a vibrant bitcoin community. But since the speed of mining farm development and construction is a lot slower than it is in China, many of them weren’t able to come online right away.

But in 2022, many of them are poised to open back up with a vengeance. And this is what Burnett is worried about. Since mega-farms are at times owned by the mining pools or even big institutions, are the mega-farms essentially in the control of a few hands? Are these institutions focused on what is right for bitcoin? Are these institutions controlled by the government? Are these mega-farms just making the big players even bigger?

BTC.com

Condron pointed out how most hashrates are controlled by 5 major pools. At the moment, the top 5 major mining pools for bitcoin are Foundry USA, Antpool, F2Pool, Binance Pool, and ViaBTC. They own about 70% of the global network hashrate. This should be an alarming amount to some as this is what is considered over the 51% attack threshold.

How to further decentralization?

Barbour mentioned that not only should miners be using downstream (aka peak privacy) energy supplies, but also upstream (peak efficiency) too. He compared ASICs to being like engines. Eventually, they will be a commodity and much cheaper for the retail market. Barbour’s company, Upstream Data, produces specialized outdoor boxes for at-home miners to house their ASICs in a safe and efficient manner. These boxes allow for the ASICs to run cool, and secure, and to trap the sound from coming out.

Barbour also stated to put it into perspective, bitcoin since the start has been decentralizing, slowly but surely. So don’t rule out home mining ever. Even though home mining doesn’t get the attention anymore due to the mining farm industry, that doesn’t necessarily mean there aren’t home miners. It’s probably bigger than what it was before and this should be expected to increase.

Gibbs “Everyone needs to be running an ASIC”

Whit Gibbs, who is the founder of Compass Mining, reminded us that everyone should be running an ASIC machine. If you are holding bitcoin, then you should run an ASIC as well. It’s part of the holistic nature of being in bitcoin. Besides holding your own bitcoin private keys, one should also run their own node, and mine their own bitcoin. That is truly the complete bitcoin experience of self-sovereignty.

Burnett would love to see all large-scale mining farms have their own mining pools. And for every bitcoin stakeholder to have their own mining pool.

Conclusion

The one thing that these panelists can conclude is that home mining needs to be more prevalent than large-scale bitcoin mining farms. If the ownership of each hashrate is in the hands of 1 person, decentralization can be further exercised in a way that is meant for the bitcoin network. But if we keep throwing ASICs to large-scale farms, then decentralization will become less and less. Both are needed to keep mining improving and scaling, but home mining needs to have more importance on the network.

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