Decentralization means different things for different people. It can also be applied to a variety of different variables, from the technological to the cultural.

How much of decentralization is the technical balance between miners, nodes, and other stakeholders in the network that accords each different powers and responsibilities? This has, for example, been a long-standing thread that has been pushed by Ripple CEO Brad Garlinghouse , with the Ripple team also making allegations that both ethereum in its current proof-of-work consensus algorithm and bitcoin are controlled by China as a result of the mining pool concentration.

The first thing to understand about this argument is that mining pools command loyalty not based on geographic traits or even political ones, but rather, reward types, fees, and how the pool deals with bitcoin transaction fees. Mining pools might have a geographic base , but miners that pledge their hardware and their hash rate might not and can switch their loyalty depending on a host of factors. At any given time, if the rewards and technical conditions of mining pools change, there can be a shift towards mining pools based in Europe or North America — or anywhere else in the world.

Bitcoin Mining Map

Mining pools based in China are also running contrary to state policy. This included concrete policy such as the central government asking local governments to step out of bitcoin mining. Everything from energy usage to dissident activity has been cited as reasons to cut down power supplies to bitcoin miners. Several bitcoin miners have actually left the country as a result and looked to seek refuge in countries like Canada.

In a sense, this is a more philosophical and general argument, but it speaks to how peoples are not tied exclusively to their states despite what those states would lead you to believe.

Chinese bitcoin mining pools and bitcoin miners are acting as a sort of dissent within the Chinese political system. While some local governments may support them, the central government in China has strongly embraced blockchain and its own central bank digital currency DCEP while shunning cryptocurrencies. Miners themselves are highly nomadic within China, with many shifting from different regions depending on the weather and its implications for electricity rates. While their incentives may not be bereft of financial interest and in fact, are probably principally motivated by money , to blame the mining pools for being based in a certain nation and being controlled or blindly loyal to a government flies in the face of the facts on the ground.

Mining pools are more loyal to whichever incentives help them make more value. Miners in turn are loyal to whichever pool supports their stance on bitcoin and their best rewards. Bitcoin miners derive value from bitcoin and other proof-of-work cryptocurrencies — if the health of these networks would decline, then the fixed investments they would have made in ASIC mining equipment would be worthless. Their interests are aligned to the bitcoin network and this plays a larger role in their decisions from what to do during a fork to where they put their hash rate.

Miners are also not the only institutions that matter in the balance of proof-of-work blockchains.

How to Choose a Cryptocurrency Mining Pool

Nodes are run around the world. The coders that build up the framework of cryptocurrencies are distributed around the world, with US-based institutions such as cryptocurrency exchanges and non-for-profits like the Human Rights Foundation providing funding. Essentially, ASICs are targeted pieces of hardware that aim to beat out general graphics processing units GPUs by being more efficient and therefore more lucrative when applied to the cryptocurrency mining process.

ASICs are so powerful that once a coin-specific ASIC is released, it is usually unprofitable to mine without one, according to a report by Oxen, a company that creates privacy tools that enable untraceable, secure transactions and anonymous transactions. This is not necessarily bad in and of itself. The problem for many cryptocurrency miners and investors has to do with the way that ASICs are created and distributed.

Indeed, there are very few manufacturers of ASICs; this means that the space is highly centralized. When a small number of companies have near-total control over distribution rights to hashing power for a cryptocurrency via the provision of unequaled ASIC technology , the process of mining itself becomes more centralized.

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Bitmain is one of the largest and most prominent ASIC manufacturers. Bitmain has repeatedly launched ASIC miners for coins that developers had claimed were "ASIC-resistant," meaning that the mining process could not be made more efficient through a specialized piece of hardware.

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  • However, these specialized ASICs have routinely proven developers wrong, showing that they can, in fact, be more profitable. David Vorick, the lead developer of the decentralized storage platform Sia, said that "you will always be able to create custom hardware that can outperform general-purpose hardware," adding that everyone he has talked to "in favor of ASIC resistance has consistently and substantially underestimated the flexibility that hardware engineers have to design around specific problems.

    The impact of this reality on the cryptocurrency ecosystem is that companies like Bitmain will undoubtedly be able to continue developing hardware that allows for more efficient and more profitable mining. Once a group controls a majority of hashing power, that group can then abuse the decentralized nature of many cryptocurrencies, even rewriting transactions on a supposedly-immutable distributed ledger.

    One way the cryptocurrency world could address the growing threat of centralized mining is by decentralizing the manufacturing process for ASIC miners. A decentralized system would result in there being dozens of companies that create ASIC miners versus only a couple of companies. This competition would drive prices down and availability up. Another way to address the centralization of ASIC manufacturing would be to implement a new hashing algorithm that could effectively obliterate all existing ASIC miners.

    This would level the playing field and thus, open the door to new manufacturers and potentially give new manufacturers an advantage over established, heavily-resourced players already in the system. Many cryptocurrency developers have attempted to fork their currencies in an attempt to limit the usefulness of particular ASICs. Time after time, though, this has proven futile, with ASICs catching up to algorithm changes quickly. Furthermore, forking can introduce other problems into the code and have the unintended side effect of centralizing power with developers.

    For Vorick, the ideal solution involves admitting that the hash rate is likely to be centralized among manufacturers of powerful ASICs. Coin Insider.

    Cambridge Bitcoin Electricity Consumption Index (CBECI)

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