Centralisation of Bitcoin Mining: A Threat to Decentralisation

The centralisation of Bitcoin mining has emerged as a significant threat to network integrity and security. Currently, most Bitcoin mining is concentrated in a few pools, particularly in China, with about 54% of the global hashrate controlled by Chinese mining pools, according to data from CryptoQuant. This phenomenon threatens to undermine the decentralised nature of Bitcoin, a fundamental tenet of its design.

The Centralisation of Mining in China

Despite reports indicating a ban by China on cryptocurrency mining, the country continues to dominate the global hashrate. This is mainly due to low energy costs and established infrastructure, which allow mining pools to operate efficiently. Two of the major mining pools, Foundry USA and Antpool, control nearly 50% of the global Bitcoin hashrate, making the network vulnerable to potential coordinated attacks, such as the feared 51% attack.

The Risks of Centralisation

Centralisation of mining not only jeopardises the security of the network, but also compromises its resilience. If mining pools collaborate to control the hashrate, they could influence transaction processing, censor certain transactions and, in practice, take on a role similar to that of a central bank. This would go against the fundamental principles of Bitcoin, which were designed to eliminate intermediaries and ensure an open and uncensored financial network.

In addition, an analysis conducted by a Bitcoin developer, known as 0xB10C, revealed that the major mining pools use identical block templates to select and sort transactions. This standardisation could indicate collaboration between the pools, further undermining the decentralisation of the network.

Donald Trump's Promise to Reduce Energy Costs

Former President Donald Trump recently promised to drastically reduce energy costs in the United States, a move that could have significant implications for Bitcoin mining. During the Bitcoin 2024 conference in Nashville, Trump stated that his administration will commit to building new power plants and removing certain regulations to facilitate low-cost energy production. If Trump delivers on this promise, the United States could become an attractive jurisdiction for Bitcoin miners to compete with China's low energy costs.

The Impacts on the Mining Ecosystem

Reducing energy costs in the United States could fragment the centralisation of Bitcoin mining, increasing the decentralisation of the network. More mining pools and independent miners could emerge, reducing the risk of centralised attacks and improving overall network security. In addition, as energy capacity expands, the US could attract more miners, shifting the balance of power away from China and towards a more equitable global distribution.

The Need for Energy Diversification

Trump emphasised the importance of investing in a diverse range of energy sources, including oil, nuclear, and solar. This strategy would not only make the US more competitive in Bitcoin mining, but also contribute to the country's sustainability goals. Cheap oil could be used to produce cleaner energy, reducing the environmental impact of Bitcoin mining and improving the industry's reputation.

Conclusion

The centralisation of Bitcoin mining poses a real threat to the security and decentralisation of the network. However, Donald Trump's promise to reduce energy costs in the US could offer a long-term solution by making mining more accessible and fragmenting the power held by a few large pools. If this promise materialises, the US could become a global hub for Bitcoin mining, helping to preserve the fundamentals of the network and ensure its long-term resilience.