The “Great Recession” in 2008 highlighted the dangers of a highly centralized financial system, igniting a global push towards decentralization that resulted in the creation of Bitcoin – a decentralized digital currency.
Some critics, however, point to the concentration of hashpower amongst a select few mining pools as well as the geographical centralization of miners within China as reasons why the benchmark cryptocurrency is not truly decentralized.
These critiques fail to address a few key facets of Bitcoin’s governance structure that ensure integral participants within the ecosystem – like miners – are not able to fully control the network.
In a recent op-ed piece published on CoinDesk titled “Bitcoin’s Stolen Revolution,” Evan Shapiro, the founder and CEO of O(1) Labs, rehashed cliché talking points regarding Bitcoin being a centralized network.
The talking points Shapiro refers to have sparked a pertinent conversation regarding the state of the Bitcoin ecosystem, and why it is vital to understand that the cryptocurrency’s power does not rest solely in the hands of those that mine it.
Within the op-ed, Shapiro claims that the concentration of hashpower amongst a few large mining pools is one of the main factors contributing to the “facade of false-decentralization” that underpins the original cryptocurrency.
“Sixty-five percent of its hashrate is in one country: China. Globally, about 10 different organizations control 90% of the hashpower,” he said.
Factually, his claim regarding the geographic concentration of Bitcoin’s hash rate is accurate, as a recent report from the investment firm CoinShares revealed that “as much as 65% of Bitcoin hashpower resides within China” as of late-2019. This has been corroborated by the University of Cambridge.
In reference to this statistic, he states that this is a clear reason why Bitcoin is not a decentralized network.
“If I described to you a council of 10 companies dictating the future of a product, and more than half are in China and beholden to a centralized government, would you call that decentralized? No, but that’s the state of Bitcoin today.”
This could open the gates for these parties to begin making decisions relating to the Bitcoin network that fulfill ulterior motives. The Chinese government may even use these mining groups as proxies to influence the network, he claimed.
“When you’re one of 10 players who meets regularly to determine the future of gold 2.0 – and you are de facto controlled by the Chinese government – maybe you won’t be the unbiased party you aspire to be.”
There’s an important point that this argument misses: miners are not the “be all end all” of governance decisions.
Nic Carter, a general partner at Castle Island Ventures and the co-founder of Coin Metrics, spoke to the BTC Times about this misconception, explaining that there is "bountiful historical evidence" showing that the control miners have over the Bitcoin network is limited.
Miners manifestly do not control Bitcoin; there's bountiful historical evidence attesting to that. The UASF is a great case study in which miners were overruled by economic nodes.
UASF refers to a user-activated soft fork in which network stakeholders can conduct “soft-forks” to implement network changes. It essentially places control over the network in the hands of those running full nodes.
Additionally, even if the Chinese government were to seize partial control over the Bitcoin network by using mining companies located in the country as proxies – which there is no evidence of – there would be plenty of ways for the Bitcoin network to circumvent their influence.
Carter explained that full nodes could essentially “kick China off the network” by forking to a new hash function that bricks all their mining hardware.
And if China somehow captured all the miners and started making policy on Bitcoin, we would immediately fork to a new hash function (likely one optimized for GPUs) and brick all the hardware, rendering it worthless.
It’s important to keep in mind that much of the criticism relating to Bitcoin’s decentralization comes from those vested in projects premised on being competitors to Bitcoin.
But these projects have yet to garner even a fraction of the adoption that the benchmark cryptocurrency has seen as both a currency and as a store of value.
On this point, Carter explained that Bitcoin alternatives are making the mistake of thinking that they can “plan” for decentralization, a trend that occurred organically within the Bitcoin ecosystem.
No alternative they could create could possibly witness such emergent decentralization of power. In Bitcoin it happened organically. You can't ‘plan’ for decentralization.
It’s also important to bear in mind that irony is revealed when the founders who sit at the helm of corporate entities criticize Bitcoin’s purported centralization, as their company is often one of the only forces driving progress within their token’s ecosystem.
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