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Latest: Bitcoin Mining Complete Analysis

The bitter truth is that Bitcoin mining has a centralized business operation as few handfuls of Companies have taken over the Bitcoin mining industry.
The bitter truth is that Bitcoin mining has a centralized business operation as few handfuls of Companies have taken over the Bitcoin mining industry.

Citing various possibilities of regaining decentralization in the Bitcoin mining industry.

Why do we need a Consensus?

Any particular system, for efficient functioning, must have a governance mechanism, in order to avoid exploitation of the resources. This can be related to the Cryptocurrencies, where for its smooth functioning the consensus algorithm is applied. The power of decision making is taken from an individual and distributed among the community itself, which is the inherent reason for the development of Crypto economy. Proof of Work, Proof of Stake, Delegated Proof of Stake, etc is some of the only algorithms applied. Specifically, the world’s most popular cryptocurrency, Bitcoin incorporates the Proof of Work algorithm which implies the bitcoin mining operations.   

 

Decrease in the block reward over time

Mining is very similar to the traditional Gold mining where the users utilize the computer resources in order to solve a particular puzzle generated by the algorithm. The algorithm is designed in such a way that, on solving a puzzle successfully, that particular node of the network receives something known as block reward, in the form of Bitcoins along with the total transaction fees of the transactions he or she verifies. Currently, the block reward is 12.5 Bitcoins and before that was 25 and 50 Bitcoins respectively. It is estimated that approximately, for every 4 years the block reward gets halved.

 

The dominance of Bitcoin mining pools of China

The bitter truth is that Bitcoin mining has a centralized business operation as few handfuls of Companies have taken over the Bitcoin mining industry through their extensive hardware pieces of equipment. Specifically, Bitcoin mining companies from China namely Bitmain, BTCC/BTC China, and discus fish/F2Pool. The algorithm is designed in such a way that if the number of nodes club together and solve a common problem, then the difficulty is not increased but if the same number of minors individually try to you solve it, then the difficulty of solving increases. Therefore, people in early day days preferred to join the mining pools rather than individual mining. As an uninvited consequence of which, has resulted in the centralization of the mining pools.

 

Individual mining from home is non-profitable

If you are thinking of setting up a Bitcoin mining facility at your home, then it would be an utter failure, as the returns from the operations would be negligible, compared to the expenditure for electricity and types of equipment. In fact, smaller mining pools have also been suffering greatly and a Swedish Bitcoin mining pool, KnCMiner had also filed for bankruptcy. Hence, joining major Bitcoin mining pools is only way out, but even that has its own consequence as it leads to centralization of the mining operations. In a nutshell, it is highly challenging for an individual to undertake the Bitcoin mining operations.

 

Environmental effects and cost of electricity due to Bitcoin mining

Bitcoin mining operations have become so rampant, that they are eating up electricity which can be utilized by an entire country for a year. As mining operations have skyrocketed, even the price of electricity in various countries have been increased, particularly in China as they dominate it. The electricity bill of China’s largest Bitcoin mining pool, Antminer (Bitmain) accounts for a staggering $39,000 per day. China accounts for almost two-thirds of the total computational power vested in the field of Bitcoin mining. As mining operations require lots of electricity and generate thermal energy, it has environmental hazards and creates an imbalance in nature.

 

Increased electricity costs

On citing the harmful effects of Bitcoin Mining, governments of various countries have taken a stance of regulating them. Therefore, as a precautionary measure, they have increased the prices of electricity in order to control the mining operations but this would indirectly affect the Crypto Economy, as the mining pools would be forced to reduce their operations which would indirectly have an adverse effect on the prices of Bitcoin as the transaction fees would be affected. The combined effect of all these consequences might also push the price of Bitcoin.

 

Nearly impossible to regain the sanity of Bitcoin Mining

Long story short, Bitcoin mining have slipped from the hands of people as major business corporations have dominated over the industry. Regaining back decentralization in Bitcoin Mining, as it used to be in the earlier days, is highly challenging and equally competitive.

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Written by Layla Harding

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