Bitcoin is the most decentralized form of currency, eliminating middlemen and encouraging peer-to-peer transactions. However, the trends and patterns of the currency cause many to question, Is Bitcoin Mining Centralized?
Satoshi Nakamoto created Bitcoin and, in the original white paper, envisioned a P2P connection. However, that seems not to be the case lately. In a recent Twitter thread, May 2021, Elon Musk responds to Peter McLasso, another user explaining how Bitcoin is more Centralized than decentralized.
“Bitcoin is highly centralized, with a supermajority controlled by a handful of extensive mining (aka hashing) companies.
A single coal mine in Xinjiang flooded, almost killing miners, and the Bitcoin hash rate dropped 35%. Sound “decentralized” to you?”
According to Elon, a small number of miners control Bitcoin’s hash rate. Every time there is an issue with mining, Bitcoin plummets. China’s ban on cryptocurrency mining caused a bearish market early this year. The cryptocurrency market also lies in the hands of the famously rich, for example, Elon Musk. Elon stating Tesla will no longer accept Bitcoin this year was also a trigger for the market crash.
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Scalability and Security
Even though miners moved from China, it remains a dominant player in Bitcoin mining. Its energy consumption fell from 75% to 46% in 2019. The miner’s attempt to improve security and scalability has turned the world’s leading blockchain centralized.
Paddy Ceri, the founder of Minima, says the Cryptocurrency dream has lost its way. Outsourcing critical infrastructure is a contribution to the broken dream. Minima is an ultra-lean base layer blockchain to leverage billions of IoT devices and smartphones to achieve true decentralization. Minima aims to avoid compromises with security and scalability by allowing every user to construct a full-scale validating node.
Proof-Of-Work (PoW)
PoW is another confirmation of the centralization of the Bitcoin ecosystem. In PoW, a few miners validate the transaction hash before adding it to a block. There is no active distribution in mining and node validation among the cryptocurrency users; the task is left to a few miners. Therefore, the power is majorly in the hands of the few.
Miners in China, for example, control the hashing power of Bitcoin. If forced, the miners could take over the network. Decentralization is supposed to prevent occurrences like these by distributing control across each individual.
Proof-of-Stake (PoS) and Cryptocurrency Whales
PoS blockchains attempt to solve PoW centralization, but the result is a whale problem. Few people stake a handful of tokens, distributing a few to users. Cases occur when a whale cashes out, and the whole crypto-coin collapses. Whenever Bitcoin whales cash out, it usually is a red day for Bitcoin. Therefore, whales indirectly control the crypto coin, lacking total decentralization.
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Cryptocurrency whales seem to control the market waves. Massive cash outs cause the markets to plummet, whereas massive buying causes the markets to go green.
Is Bitcoin Mining Decentralized?
Bitcoin’s aim is decentralization. However, current trends show that the coin is possibly centralized. From the influence of whales, PoS, PoW, the security, and scalability of the coin have become more Centralized. According to CoinMarketCap, Bitcoin is currently trading at $50,106.56 a -1.16% price drop in the last 24hours.