( 01 October 2019 )
Turning Off Hash Power
The majority hash power doesn’t have to attack the network in order to have influence, however. The majority can simply refuse to mine and provide the proportional security for the network. For example, the majority, say 80% of the hash power, can refuse to mine as a way to add political pressure for a certain feature. This would be similar to a hunger strike.
This scenario would cause some difficulties on the network. 10 minute blocks would now become 50 minute blocks. The mempool would probably fill up fairly quickly and transactions would be especially slow. This may, in turn, lead to higher fees.
This scenario is much more expensive for the attackers, however. They are giving up 1437 BTC/day or about $10M/day in revenue at current exchange rates. Even if the equipment were to be utilized on another network, their profitability and opportunity cost would suffer quite a bit. What’s more, the Bitcoin network confirmation times would recover in a matter of weeks while the lost revenue will never come back for the would-be hunger strikers.
Bitmain
At least from a manufacturing standpoint, the risks are being lowered continually. As much as people hate Bitmain, let’s not forget what manufacturers existed before them were like. Butterfly Labs, CoinTerra and KnC Mining are just some of the names in this space and they had some serious trouble even filling pre-orders.
Bitmain brought a professionalism to the mining industry that simply wasn’t there before. They were selling fully assembled, ready-to-go miners at conferences in 2014 where these other companies were delaying the delivery of pre-orders from months, sometimes years, before. The competence that Bitmain brought to the mining industry is why those other players are bankrupt. That said, there is no reason to believe that Bitmain’s market dominance is permanent.
First, there is a lot of competition coming. There are no less than 4 startups that I know of that are entering the mining space attempting to dethrone Bitmain. There are also larger companies like Samsung, Intel and Nvidia that are looking into getting into this very lucrative industry.
Second, unlike Bitcoin itself, there is no strong network effect in mining equipment manufacturing. People looking to mine may care a bit about who the machines are manufactured by, but most care much more about how much money they can make. In other words, having bought miners from Bitmain in the past does not lock them into buying more of their products. If anything, many people looking to mine will pay more to get non-Bitmain products.
Third, Bitmain is a very large company at this point. They are working on machine-learning ASICs, altcoin ASICs, buying up companies and funding lots of different projects. Large companies are often less nimble than their smaller counterparts and time can expose any flaws that a company this big can have.
This is not to say that Bitmain will simply give up their large share of this very lucrative industry, but there is certainly a lot of room for competition. If you believe in the free market as I do, it’s easy to see that any imbalance will even out over the long term. Right now there’s a manufacturing imbalance. Mining manufacturing centralization is a short term problem.
Comments