Key Points
- The impending Bitcoin halving could exacerbate the trend towards mining pool centralization.
- Experts are worried that this centralization could lead to increased volatility and potential censorship.
The upcoming halving of Bitcoin (BTC) has caused unease among industry professionals, who fear it could result in greater centralization.
They worry that the reduction in block rewards will render older mining equipment unprofitable, leading to a concentration of hashing power among fewer miners.
Increasing Centralization
Over the past few years, there has been a noticeable shift towards mining pool centralization on the Bitcoin network.
This trend is expected to be accelerated by the halving.
Historical data indicates that from 2016 to 2021, the top two mining pools controlled around 30–40% of the hash rate during any given three-day period.
More recently, on Feb. 28, Foundry USA and AntPool, the top two mining pools, controlled almost 50% of the network’s hashing power.
Data also suggests that 26.55% of the total blocks have been mined by unknown or unaffiliated sources since Bitcoin’s inception.
The Issue with Centralized Mining
Jesper Johansen, founder and CEO of venture capital firm Northstake, predicts that the halving will lead to increased volatility for BTC mining, and subsequently, increased centralization.
According to Johansen, with significant control over the mining process, centralized entities might have the power to censor transactions by choosing not to confirm them, which conflicts with Bitcoin’s ethos of decentralization and censorship resistance.
Chris Blerc, a Bitcoin researcher, has long been concerned about centralization.
He argues that centralized mining creates numerous risks for BTC, including the potential blacklisting of certain products.
In December 2023, Blerc noted that the two major mining pools controlled 55% of the hashing power.
Centralization and Censorship
The debate on whether Bitcoin centralization will lead to censorship may already have an answer, as research has uncovered one mining pool filtering or censoring some transactions.
In November 2023, Bitcoin developer 0xB10C reported on a number of transactions that may have been filtered out of blocks by mining pools.
Profitability Amid Halving
While the halving of block rewards may make mining less profitable, some scenarios could offset the reduction in income.
The simplest of these scenarios would be if the price of Bitcoin doubled against the U.S. dollar.
Laurent Benayoun, CEO of Acheron Trading, stated that miners already have more than one way to make a profit.
Addressing Centralization
There are many uncertainties when dealing with the issue of hashing power centralization.
However, if the rising price of Bitcoin and transactions doesn’t absorb the decrease in mining rewards, finding further solutions may be challenging.
According to Johansen, any drastic proposal to mitigate the issue would undoubtedly face serious opposition from Bitcoiners.
Even if the halving causes a few additional bumps in the road for miners, the only realistic choice will be to ride it out.
