Is there something unique about Bitcoin that makes it naturally ill-disposed to monopolies?
We have indeed been hearing a lot from a number of users on the network how miners have got too much power and hence are operating in a monopolistic fashion. Yet, according to professor at Siena University this should not be a concern.
In a journal on blockchain research, the professor explains using game theory how even if one miner is able to undercut the other for more revenue, the other won't leave the market.
According to to Peter Rizun, co-founder and editor at the ledger, this is important for the cryptocurrency community as it should assuage any fears of potential market manipulation. In an email with coindesk Rizun stated that
The mindset of much of the community today is that 'it's critical that all miners have essentially the same profitability hash-per-hash, otherwise the most profitable miner will continue to grow until he controls nearly all the hash power.'"
He does acknowledge the fears of some developers about the concentration of mining power. He mentions the controversy around a particular mining pool that has been running ASIC Boost in order to increase profits. This may have forced other miners out of the system. Similarly, the slower block propagation times are a concern as they may also be pushing out the smaller miners.
However, the premise of the paper is that a certain amount of concentration by the miners need not be to the detriment of Bitcoin users.
Bitcoin's Future and the 51 Attack
This is of course not to play down the legitimate concerns that users may have about the theoretical danger of too much concentration. This is in reference to the rule of 51 or the 51% attack. Indeed, these concerns were also highly prevalent in the Bitcoin scaling debates earlier this year.
Similarly, many users are of the view that miners that have too much control over the network have an outsized impact decisions of a technical nature. Indeed, Mr Rizun alluded to this in a blog post in March where he claimed that the miners could force the users into Bitcoin Unlimited.
Of course, the paper is merely a theoretical construct and it could indeed be too early to tell the real impacts of concentration. Even the co-author Dimitri claimed that we had to wait and see how things played out.
One of the assumptions that the study was based on was that there were only two miners in the game theoretical construct. In reality, however, there are many more mining pools with varying degrees of computing power.
Dimitri also concedes that there are many other factors which could change their calculations drastically. Many of these factors are indeed central to the current debate.
Among them the current debate and interest on the block size, which may affect the main conclusions of the paper, at least in so far as the number of potentially active miners is concerned."
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.