What, Why, and How: Bitcoin Centralization

Welcome, welcome to One Minute Crypto! I’m your host, Chronos, and today I want to
talk about the perils of bitcoin mining centralization. First, we’ll cover what it is, then why it’s
bad, and finally, why this problem is never going away. But first, I want to thank our sponsor, Americas
Cardroom, the most trusted US online poker site. Use the bonus code “Chronos” and you’ll double
your first deposit, and get up to $50 in free cash! Deposit with your favorite cryptocurrencies
at Americas Cardroom. So bitcoin, and other proof-of-work blockchains,
are secured by miners on the network. This is a completely open architecture: anyone
can be a miner, all you need is an internet connection, and a machine to do the mining
itself. If you have a lot of small, independent miners,
that’s decentralized. But if they all team up, that’s centralization. So why is that a bad thing? Well, what really sets bitcoin apart from
its competitors is that it’s really hard to shut down. Even if you knock out half the miners on the
network, it can can just keep running with whatever is left. But if mining becomes too centralized, it
creates a much easier target for anyone who wants to control it or shut it down. But here’s why this problem is never going
away: it pays to combine forces with other miners. We just saw this play out, first-hand. The Bitcoin Cash network underwent a major
stress test this month, where users sent massive amounts of spam transactions to see how the
blockchain could handle it. The results were really interesting, and we
saw some huge blocks. One big block, about 8 megabytes, came out
of a mining pool called ViaBTC. Because it was so big, it took a longer time
than usual for the other miners to receive it, and during that transmission time, another
mining pool, called BTC.TOP, also mined a block. But they hadn’t heard about ViaBTC’s block
yet, so they didn’t mine on top of it. Instead, theirs became a competing block. This is pretty unusual, to have two blocks
competing, but it’s more common as the blocks get bigger, because sending them around takes
longer. This situation created a race: whoever mined
the next block would get to choose which one would be the “real” accepted block, and the
other one would be orphaned, or thrown away, leaving its creator with no mining reward. ViaBTC got lucky and mined the next block
themselves, so they orphaned the competing block and took the profit. But if BTC.TOP had been a bigger mining pool,
they might have won the race instead, leaving ViaBTC emptyhanded. It mostly came down to which one was the more
powerful mining pool. This mechanism, where blocks can get orphaned,
becomes a bigger deal when blocks take longer to send between miners. But when they team up, it’s no longer a problem. The result is centralization. Jonathan Toomim just wrote a great article on the Bitcoin Cash stress test, with lots
of data on how its bigger blocks flowed through the network. I’ll put a link below the video so you can
check it out for yourself. I’m Chronos. Thanks for watching!

4 thoughts on “What, Why, and How: Bitcoin Centralization”

  1. This video is sponsored by Americas Cardroom, the most trusted online poker site. Fund your account AND claim your winnings using your favorite cryptocurrency! Make your first deposit using bonus code CHRONOS to get 100% bonus + up to $50 cash. US players welcome! Play TODAY: http://ow.ly/NEzd30guKzU

  2. Learn more about the Bitcoin Cash Stress Test in Jonathan Toomim's excellent article. https://medium.com/@j_73307/block-propagation-data-from-bitcoin-cashs-stress-test-5b1d7d39a234

  3. You are mixing up centralisation (which is political power in decision making) with geographical diversity.

    Even if miners from around the world join forces, this is no different to miners joining pools, this does not make it centralised. It is because there is no political power that can dictate terms and conditions onto others, the way government can using force, this system, even in mining is not centralised. There is no central point of failure, not in Bitcoin Cash network anyway as every single aspect of the network doesn't have single point of failure, this includes code & miners (as they are not only geographically diverse but also politically diverse, there are miners in many different nations and continents so there is no centralised point of failure).

    If you look at Bitcoin Core client and BTC network, that one actually does have centralised point of failure, one is in code development (which is Bitcoin Core team itself) and their single client implementation, which just recently showed its bad nature when serious bug was found which could have crashed all nodes in the network that are running this client, which is pretty much all of them. Bitcoin Cash network doesn't have such issue as both development and code implementation has multiple coding teams and implementations.

Leave a Reply

Your email address will not be published. Required fields are marked *