Negative Effects of Mining Centralization Finally Being Realized

I was around when bitcoin mining was still done on GPUs and for a while even ran my own mine, so I am not stranger to what happened to the centralization of mining. To be completely honest I was never completely against ASICS coming to mining because I knew that based on economic theory, eventually countries where electricity was cheapest would become the main location for future miners. Not to mention that having millions of dollars in physical investment into hardware that only did one job, which was securing the bitcoin blockchain adds value. Well the last few years particularly if you haven’t been in a bubble you have realized almost all of the miners are in China. The problem isn’t where they are located, but rather how the mines are run and who actually runs them.

China is not a fully capitalist country and in order to do business you still need to have connections to government officials, which usually means that someone who was of value previous to running bitcoin mining operations is running them now. Because they negotiate their monthly electricity rates with the government run electric company, Chinese miners are forces to make connections. While the mines that are being run are competitive, I have strong suspicions they operate more like an oligopolistic competitive market rather than a pure competitive one. Basically meaning while they compete, they also look out for each other’s interests, which is no surprise because many of the mining operators are also friends with each other. It is only natural to become friends because they work in the same business but this highlights a massive problem for bitcoin.

With the community split on certain issues like segwit and hard forks, miners are the gatekeepers to actually having the code implemented on soft forks, as we need 95% of the blocks signaling to upgrade. The problem with this is that as mining has become so centralized, regular people aren’t mining in pools like the old days, but rather it’s a single person who owns multiple percent of the hashing power. So if a single bad actor is say, paid to block an implementation of a certain soft fork, it can be done. As I talked about a few days ago , they can also hold their hash power as a bargaining chip to get other things they want. Even if the community wasn’t split on the issue and say core wanted to put in a soft fork that miners didn’t like, but everyone else wanted, it would be blocked or forced into a hard fork. You could essentially have 5-10 people who own these mining companies blocking everyone.
There is no simple way to address this other than compromise, which is the nature of an open source project, but it is a problem that I foresee only getting worse over time. Electricity is just too cheap in China, that unless we get countries to subsidize mining or the price makes it extremely profitable, it will stay there for the long term. Also as time goes by and halvings come, mining will be less and less profitable. Inevitably everything ends up in China which is not the ideal place where we want to be located. This is my tinfoil hat speech, but because of the government connections required to continue running one of these mining operations or to negotiate electricity, im sure certain officials have a bigger hand in the project than you know. The good thing is that China is insanely corrupt so as long as officials are making money, I doubt they will shut down the operations, but not being a pure competitive market is very bad for the long run.

We are now seeing the effects of what asics brought to the market vs GPUs, there might have been huge gpu farms but not to the point where they owned 20% of the hashing power. I think segwit will eventually pass, but what worries me is the future when the block reward lowers and miners start looking for more profit. What will they demand then? This is just a word of warning for what I think might happen in the future, not that it will completely and im hoping that the newest chips which are the smallest we can technically make, being distributed around the world will distribute hashing power more, but China still has the best electricity rates and connections to the chip manufacturers as well.

-Calaber24p