Bitmain – one of the world’s biggest Bitcoin mining pools – is edging closer to controlling 51% of the Bitcoin network hash rate. According to blockchain.info, in the past 48 hours Bitmain has controlled 43.9% of the network hash rate and has relayed 140 of the known blocks. To put this into perspective, 14 other mining pools combined relayed the remaining 179 known blocks during this period.
Bitmain has the Upper Hand
Unlike the majority of its competitors, Bitmain manufactures its own application-specific integrated circuits (ASIC) miners. ASIC miners are able to mine Bitcoin at a faster rate than high-end graphic processing units (GPUs). By producing their own ASIC miners, Bitmain can control how fast they expand operations by simply increasing ASIC miner production rate. In addition to producing their own ASIC miners, Bitmain also operates mining pools where miners combine their efforts, which in turn reduces their operating costs.
Owning the two Leading Mining Pools
Both BTC.com and AntPool are both owned and operated by Bitmain. BTC.com has its own operations – which Bitmain insist are independent – but is still fully owned by the company. BTC.com accounted for 27.3% of the network hash rate, whilst AntPool accounted for 16.6% during the previous 48 hours. According to stats on their website, BTC.com is currently running at a hash rate of 8947.00 PH/s and AntPool is running at 5592.26 PH/s.
Bitmain’s investments into the crypto world don’t end with mining. Last week, Jeremy Allaire (Circle CEO) revealed they have received $110 million in series E funding from Bitmain. Bitmain are touted to provide the infrastructure that will process the transactions made with Circle’s new price stable tokenized US dollar coins (USDCs).
Unutilized Hash Rate Available
It’s unsurprising that Bitcoin and Bitcoin Cash share the same algorithm, and therefore the same mining equipment can be used. This is useful for large mining corporations such as Bitmain, due to the fact they can divert resources between the two crypto mining operations as and when they need.
BTC.com and AntPool – Bitmain’s two mining pools – control roughly 23% of the Bitcoin Cash network hash rate. However, the difficulty level to mine Bitcoin Cash is much lower, so if you convert Bitmain’s combined hash power all to Bitcoin mining, it would be more like an additional three or four percent more as opposed to 23%. This three percent might seem like an insignificant amount, but mining on the Bitcoin network is currently seven percent more profitable than on the Bitcoin Cash network.
Controlling 51% of the Mining Power
Even if Bitmain converts its Bitcoin Cash mining power over to Bitcoin, it won’t be enough to push past the 51% threshold to control the network. It will, however, bring them within touching distance of it. One mining pool or company controlling 51% makes a large number of people in the cryptocurrency world rather nervous. It is associated with loss of decentralization and immutability, as one party has majority control and can write anything they want to the blockchain.
If Bitmain does reach 51%, it wouldn’t be the first time in Bitcoin’s history that this would have happened. Back in 2014 Ghash crossed into the 51% territory, and it caused a great deal of controversy within the cryptocurrency community. Ghash was slightly different to Bitmain in the sense that Ghash was a community of miners who collectively pooled their resources, whereas Bitmain is an individual entity.
One solution to the Ghash situation was for miners within the pool to divert their mining resources into different pools. This would then reduce Ghash’s hash rate back below the 51% level. This solution was the reason Ghash eventually become irrelevant in the modern mining world. For the most part, Ghash’s tenure as majority controller of the Bitcoin network hash rate was without incident. However, one rogue Ghash employee did exploit the 51% and double spent a very small amount of Bitcoin before enough miners left the pool.
The Emerging Bitmain Concern
The concern with Ghash was that a group or an individual within the pool would take control and exploit the 51% control. Because Bitmain is essentially one miner, the crypto world is concerned about a different type of network abuse. The main concern surrounding Bitmain – and other companies which are effectively are one miner – is hacking threats and rogue employees. A hack on Bitmain could leave the majority control of Bitcoin’s network in the hands of unwanted people who would inflict untold damage to the network, undermining the values and principles of Bitcoin. A rogue employee could also take control of the company’s hash rate and abuse the network for their own personal gains, as seen in the case with Ghash.
Plenty to Lose, Not Much to Gain
Bitmain stands to lose more than it could possibly gain by exploiting the network. They would very quickly become discredited and it would negatively impact the sales of their ASIC mining rigs. Given the current situation and their incredible hash power, it makes more sense for Bitmain to keep their Bitcoin network hash rate just below the 51% threshold by diverting its surplus hash rate into Bitcoin Cash. This ensures they still control close to the majority without causing any trouble.
Looking at the Potential Solutions
Bitmain have tried to address this potential issue already by splitting themselves into two separate pools (BTC.com and AntPool). However, as both pools are still under the same ownership, there is still room for abuse of power – whether it is intentional or not.
A temporary solution could be a change in algorithm during periods where one miner controls 51% or more of the network. This solution doesn’t come without its own flaw though. A change in algorithm could significantly reduce the security of the network and leave it more vulnerable to a 51% attack. In fact, this happened to Monero when they changed their algorithm.
Alternatively, Bitmain could sell their ASIC miners at a reduced cost to more evenly distribute hash power amongst the mining community. By boosting the hash power of other mining pools, it would reduce Bitmain’s dominance over the network. It would also help to keep other mining pools in business. Given the current low price of Bitcoin and the escalating costs of purchasing mining rigs and electricity, a large number of miners are either pausing their operations or making significant reductions.
This solution could help many communities where mining Bitcoin is the only way to survive, such as in areas of hyperinflation like Venezuela. With the cost of electricity virtually free, the lower cost of ASIC miners could potentially help revive an economy, as well as evenly distribute out the network hash power.
Total Hash Rate Still Climbing
On June 4th, the total network hashrate hit its all-time high of 41,980,660 TH/s. Many outspoken figures within the crypto space – such as Max Keiser – suggested that the price of Bitcoin will follow the hash rate. However, on Sunday the network hash rate climbed even higher than it previously did on June 4th, and at the same time Bitcoin prices slid slightly.
If total network hash rate continues to climb at these incredible rates, the mining difficulty level will only increase, which will force smaller miners out of the market and this could help Bitmain get closer to the 51% mark. This problem could be solved by Bitmain selling their ASIC miners at a lower cost or renting out more mining power to third-party pools using cloud-based solutions.