Why Centralized Cryptocurrency Mining Is a Growing Problem

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Why Centralized Cryptocurrency Mining Is a Growing Problem

The usage of application-specific integrated circuits (ASICs) in digital currency mining remains a challenging topic. ASICs are semiconductors that are developed for a particular function (as opposed to general-purpose computers).ASICs may be utilized for a variety of applications, including satellites and wireless transceivers in mobile phones.

ASICs are intended to mine certain currency or hashing algorithms in the realm of cryptocurrencies. ASICs are specific pieces of hardware that strive to outperform conventional graphics processing units (GPUs) by being more efficient (and hence more profitable) when used in the cryptocurrency mining process.

According to Oxen, a business that produces privacy technologies that allow untraceable, safe, and anonymous transactions, ASICs are so strong that once a coin-specific ASIC is published, it is typically unprofitable to mine without one.

Key Takeaways

  • The usage of application-specific integrated circuits (ASICs) in digital currency mining remains a challenging topic.
  • ASICs are specialized pieces of hardware that try to outperform conventional graphics processing units (GPUs) in the cryptocurrency mining process by being more efficient (and hence more profitable).
  • ASICs are so strong that it is typically unprofitable to mine without one once a coin-specific ASIC is introduced.
  • Because there are so few ASIC makers, the market is very concentrated.
  • When a few corporations gain near-total control over the distribution of hashing power for a cryptocurrency (through the deployment of unrivaled ASIC technology), the mining process itself becomes increasingly centralized.

This isn’t always a terrible thing in and of itself. The issue for many bitcoin miners and investors is the way ASICs are developed and distributed. Indeed, there are just a few ASIC makers, implying that the market is extremely concentrated. When a few corporations gain near-total control over the distribution of hashing power for a cryptocurrency (through the deployment of unrivaled ASIC technology), the mining process itself becomes increasingly centralized.

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Concerns About the Prominence of Bitmain

Bitmain is one of the world’s biggest and most well-known ASIC makers. Bitmain has regularly released ASIC miners for currencies that developers claimed were “ASIC-resistant,” implying that the mining process could not be optimized with specialized gear. These customized ASICs, on the other hand, have consistently proved developers incorrect, demonstrating that they may, in fact, be more lucrative. The lead developer of the decentralized storage platform Sia, David Vorick, stated that “you will always be able to create custom hardware that can outperform general-purpose hardware,” adding that “everyone in favor of ASIC resistance has consistently and significantly underestimated the flexibility that hardware engineers have to design around specific problems.”

The 51% Attack Issue

As a result of this fact, businesses such as Bitmain will surely be able to continue creating technology that enables for more efficient and lucrative mining.

ASIC developers, on the other hand, may quickly wind up owning more than 50% of the hashing power on a blockchain after they have effectively banned out non-ASIC miners. Once a party has control of the bulk of hashing power, it may take advantage of the decentralized structure of many cryptocurrencies, even changing transactions on a purportedly irreversible distributed ledger. This is known as a 51% assault.

How to Decentralize Application-Specific Integrated Circuits (ASIC) Manufacturing

Decentralizing the manufacturing process for ASIC miners is one way the bitcoin community might handle the rising problem of centralized mining. A decentralized system would result in hundreds of firms producing ASIC miners (versus only a couple of companies).This competition would drive down prices while increasing supply.

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Another approach to addressing the concentration of ASIC manufacture would be to develop a new hashing algorithm capable of effectively eradicating all present ASIC miners. This would level the playing field, allowing new manufacturers to enter (and potentially give new manufacturers an advantage over established, heavily-resourced players already in the system).

Many cryptocurrency developers have sought to split their currencies in order to restrict the use of certain ASICs. This has repeatedly proved ineffective, with ASICs fast catching up to algorithm tweaks. Furthermore, forking might create other issues into the code (and have the unintended side effect of centralizing power with developers).

The optimum method, according to Vorick, is accepting that the hash rate is likely to be concentrated among producers of strong ASICs. “Now that we know to anticipate a mostly centralized hash rate,” he adds, “as developers and innovators, we can continue to work on structures and methods that are safe even when the hash rate is entirely pooled into a small number of sites.” “There are a great number of additional incentives and systems at work that keep monopoly producers in line,” Vorick says.

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