Bitcoin Mining is Becoming Highly Centralized

Bitcoin’s hashrate is becoming increasingly centralized, with a few mining pools controlling most of the blockchain’s mining power. The data from Mempool from November 2021 to January 2023 shows that Foundry USA and Antpool, the two largest non-Chinese mining pools, control nearly 50% of the total Bitcoin hashrate.

Foundry USA is the leading mining pool, averaging 34.1% of the total Bitcoin hashrate, or roughly 104 EH/s, considering that the Bitcoin hashrate is around 300 EH/s.

Antpool comes in second with 18.0% of the total hashrate, equivalent to around 58 EH/s.

So what’s going on here? Well, it turns out that the five largest mining pools now control more than 80% of Bitcoin’s hashrate, compared to just 60% in early 2022. And why the sudden increase?

It could be due to the physical location of the servers. The closer these servers are to the pools and mining facilities, the lower the latency, meaning miners are more likely to get more shares in the mining process and earn more Bitcoin.

It could also be because the bigger mining pools offer more attractive financial incentives. They can guarantee consistent profit distributions to their miners, who pay a commission for using their resources.

This is especially attractive when Bitcoin is doing well, as the high mining difficulty makes it difficult for small pools to be profitable.

Unfortunately, this centralized mining system brings with it some serious risks. For example, miners could agree to reject transactions that don’t meet a specific parameter, leading to a 51% attack.

We’ve already seen this happen on other Proof-of-Work blockchains, such as Ethereum Classic, and it’s a genuine concern for Bitcoin too.

Plus, these pools are companies and could be subject to pressure from regulatory agencies trying to control activities on the Bitcoin network.

All of this adds up to a highly centralized mining network that, while potentially profitable for the miners, could be dangerous for the Bitcoin network as a whole.

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