Industry Experts Share Their Thoughts on Bitcoin Mining Centralisation in 2015
2014 was – to say the least – an interesting year for bitcoin mining. First, there was the worry that Ghash.io would be able to pull off a 51% attack on the bitcoin network early in the year. Near the end of the year, we saw – as minor as it was – bitcoin’s first drop in mining difficulty in two years. Although the bitcoin price slowly declined over the course of 2014, we also saw a nearly 2000% rise in the overall network hash rate.
So what does the world of bitcoin mining have in store for 2015? We asked three of the major players in the bitcoin mining hardware and mining pool industries to give us their predictions for the year. Here are some thoughts on what will happen with bitcoin mining in 2015 from Bitmain, Ghash.io, and BTC China.
Will bitcoin mining remain relatively decentralised in 2015?
One of the first things that bitcoin users think about when it comes to mining is whether or not it will remain sufficiently decentralised into the distant future. We’ve seen a few different mining pools gain dangerously large shares of the network hashrate in the past, but the distribution of hashing power seemed to become a bit more equal near the end of 2014. While the bitcoin community was in a state of hysteria in early 2014 due to Ghash.io’s large share of the network hashrate, the former mining pool giant has now been relegated to 10% of the overall distribution. For this reason, it should perhaps be no surprise that Ghash.io CIO Jeffrey Smith believes bitcoin mining will remain somewhat decentralized in 2015. He stated:
[blockquote]”Yes, Bitcoin mining will remain decentralized in 2015. We are watching an extremely [intense] competition between Chinese, North American and European vendors of the mining hardware. Actually, existing pools are reflecting the power of certain vendors.”[/blockquote]
Bitmain claimed that bitcoin mining will remain similar to 2014 when it comes to the distribution of hashing power among large mining farms, but their spokesperson also talked about how many new mining pools are now coming online:
[blockquote]“The mining pool service will be more decentralised. Lots of bitcoin enterprises are developing pool software and opening mining pool services. There will be more and more pools in 2015 and the top pool’s market share will shrink.”[/blockquote]
The response from Dong Fu, lead engineer of BTC China’s mining pool seemed to go to Bitmain’s point, as they claimed their goal for 2015 is to gain 10-15% of the market share with their relatively new mining pool. Although their pool was only launched late last year, it already accounts for just under 10% of the total bitcoin network hashrate. On the other hand, it seemed that the Chinese bitcoin exchange was still bearish for mining decentralization over the long term, as they simply stated, [blockquote]“Bitcoin mining will become more centralized over time”[/blockquote]
Bonus Questions: Cloud Mining and Difficulty
In addition to the questions about mining centralisation, I also asked the insiders about the proliferation of cloud mining and the possibility of another drop in difficulty. When it came to popularity of cloud mining, all three respondents agreed that this trend will continue in 2015. Jeffrey Smith, who’s company suspended their cloud mining service this week summarised the developments in cloud mining as follows:
[blockquote]“We will likely watch ordinary users buy cloud mining power, while industrialists with access to the electric energy will buy hardware. Such behaviour is expected due to the fact that theoretical mining rewards will tend to the average cost of the energy, accompanied by hardware maintenance risks.”[/blockquote]
As for another drop in mining difficulty, the respondents were again singing the same tune. Dong Fu of BTC China, put it rather bluntly
[blockquote]“If the price of bitcoin continues to drop, the cost of electricity bills will surpass the amount of bitcoin mined, which may [cause] more miners to stop mining. This will cause a decrease in hashrate and drop in difficulty.”[/blockquote]
In other words, a drop in difficulty depends on the price. The relationship between the bitcoin price and the network hashrate will be one of the most interesting aspects of the digital currency to watch in 2015. While these insiders get paid to know where the industry is going to move, the one thing that is certain about bitcoin is that no one knows how to predict what’s going to happen next.
Hash rate Image courtesy of Blockchain.info