Bitcoin miner centralization threatens Bitcoin, but former President Donald Trump’s pledge to slash energy prices can ensure its decentralization.
Bitcoin mining pools, the majority of Bitcoin mining being done, appear to be centralized in China around a handful of entities—with Chinese mining pools making up approximately 54% of the Bitcoin hashrate, according to blockchain analytics firm CryptoQuant.
News reports about China banning the mining of crypto assets exaggerated the situation on the ground. The country still dominates the hash rate, largely thanks to its cheap electricity and infrastructure.
A bitcoin mining pool is a network of miners who work together to mine Bitcoin blocks and share mining rewards, the benefits received for mining a new block. Most miners point their hash power toward pools because it’s easier, cheaper, and increases the chances of finding a block.
These mining pools have resulted in a consolidation of Bitcoin mining in fewer and fewer miners to the point where just two mining pools today are responsible for nearly 50% of Bitcoin’s hash rate, USA Foundry and Antpool.
This poses a risk to the security and resilience of Bitcoin. If enough of the mining pools form a cartel and coordinate the use of their hash rate, they can influence the processing of transactions across the entire Bitcoin network, with the power to censor transactions—essentially acting as a bank that can “freeze” your account in a system intended to have no middleman.
Centralized Mining A Real Threat
What’s more, these Bitcoin mining pools—including Btc.com, Binance Pool, Poolin, and others—not only make up the majority of the Bitcoin mining, they also use identical block templates (pre-formatted structure of mining software) to select and order transactions exactly like one another and Antpool, according to an analysis by a bitcoin developer who goes by 0xB10C.
The fact that these mining pools all employ the same block template, transaction selection, and ordering rubric indicates collaboration or standardization in mining operations across these platforms. This could potentially undermining Bitcoin decentralization and threatening the network’s security.
If Bitcoin mining is consolidated between a few mining pools, these entities could then standardize transaction selection and begin excluding transactions. For instance, pools could refuse to process CoinJoin transactions–multi-party transactions that mix addresses and signatures to anonymize transfers–if they wanted to easily censor transactions in concert with one another.
Miners who point their hashrate toward larger mining pools need their own choice of block template policies. It’s the only way miners can maintain their central role of choosing what belongs in blocks without creating the templates from scratch. Miners need freedom of choice, not homogenization of transactions by a small number of pools making key decisions.
Trump Attractive To Miners
Trump’s pledge to bring the cost of energy down within the first 12 months in office.“Under my administration, we will be slashing energy and electricity prices by at least half,” he told a crowd in Asheville, North Carolina, on Wednesday.
At the Bitcoin 2024 conference in Nashville, Trump said he would bring “tremendous” amounts of electricity to the United States in order to “dominate” mining operations.
“You need double the electricity of the entire electricity that we have right now in the United States to dominate, and we’ll get that done.”
He said his administration will have:
“Power plants built at the [mining] sites.” And will “be releasing people from certain ridiculous requirements, and we’ll be using fossil fuel to make electricity because we’re going to have to.”
If he keeps that promise, the U.S. would become an attractive jurisdiction for miners and pools—due to electricity costs made competitive with China and the U.S.’s comparative rule of law—to compete with their Chinese counterparts.
The US must invest in all types of energy, including oil, nuclear, solar, et cetera, to maintain leverage. The US is sitting on a lot of oil, and Trump could bring this out of the ground, causing a drop in domestic oil prices. That helps Bitcoin miners and helps the U.S. reach its sustainability goals, too, as cheaper oil can be used to produce cleaner energies.
If Trump can create the cheapest electricity in the world, in the US, Bitcoin would immediately be less threatened by attacks from centralized miners, including the 51% attack. Cheap electricity would break up the centralization of Bitcoin mining.
The more miners and mining pools there are, the more decentralized the Bitcoin network is. And, if Trump keeps his promise, the U.S. can make mining more accessible with cheap electricity.
