Topic: risk of centralization of bitcoin. (Read 538 times)

Greed ruins businesses and we have seen that happening on a lot of occasions in the cryptocurrency world. Remember Do Kwon? He owned an amazing project, which was becoming one of the most popular cryptocurrencies in the market, but he became greedy and wanted to earn more money and create more coins and tokens, and that made him lose everything, and the project collapsed badly. We also have Sam Bankman of FTX as an example as well, and many more.

So even if a mining pool has been built investing millions of dollars and they are earning pretty well, they can always think of getting more if they see an opportunity for it. If that happens, it's just the individual miners that can actually back off and save the network from being misused by the pool.

The idea that theymos suggested is brilliant but doesn't really solve much of the problem unless the share/bonds holders are "average community members who care about bitcoin", what if we deploy such a pool and then Bitmain ends up buying all the bonds?

The funding itself needs to come from the community, but then running a PPS pool is no easy, there are two things that you need

1- Enough reserves to avoid bankruptcy:

Meni rosenfeld has a perfect formula for this, all you need to know is :

-Your pool fee
-Block Reward
-Bankruptcy tolerance.

The average pool fee is 2.5% as of today, the block reward is 6.25, Bankruptcy tolerance is optional, and how likely to bankrupt do you want to be? in the quoted topic the caclatuion accounts for 0.1% chance of going bankrupt, it can be increased or decreased however you like.

The formula is:

(Blockrewards  *ln bankruptcy) / (2*pool fees)

Applying the above figures we get:

(6.25  *ln 1000) / (2*0.025) = 863 BTC in reserve to be subject to only 0.1% chance of going bankrupt

Could be a higher risk of 1% and that changes the numbers to

(6.25  *ln 100) / (2*0.025)  = 575 BTC

Could increase the pool fee to 3% and that gives us

(6.25  *ln 100) / (2*0.03) = 479 BTC

going back to 2.5% fee and 0.1% bankruptcy chance after the halving

(3.125  *ln 1000) / (2*0.025)  = 431BTC

2-Have enough hashrate

This is very important, in order to be effective in the ecosystem, you need to actually find blocks, it doesn't help to have a dozen small community pools that don't find a large percentage of blocks, also, since block finding follows CDF, all pools are subject to variance, the variance is greater for smaller pools, prolonged variance can easily end up destroying the pool.

Imagine a scenario where we as a community collect 431BTC the next halving, and launch a community-owned pool only to end up with say 20 ph worth of hashrate, we would hit 3.11 blocks a year on average


The chances that we find only 50% of those blocks is 10.9%, the chance of finding only 75% of blocks is 24.9%, the chance of finding only 95% of those blocks is 38.8%, so the chances that we finish a whole year with it realized profit is pretty high.

Now say we manage to get 10EH worth of hashrate, everything changes, we should hit 1,460 blocks a year, the chances of finding only 50% of blocks is now (7.672567270428342e-100) pretty much 0% , finding only 75% of blocks is (6.983521049841958e-24) pretty much zero, finding only 95% of blocks is only 2.9% percent chance, so we will be almost guaranteed to start making profit in the first year.

So operating with a low hashrate is somewhat a high risk and higher chance for a project to fail, besides, it has little to no effect on "protecting the network" because unlike what most people think, just pointing your hashrate somewhere doesn't do anything, it's like all those folks who mine to their own node thinking they are securing the network, no you are not, you are just wasting power.

So now how would get 10EH worth of hashrate? going out telling miners "Hey come join the community pool" isn't going to cut it, we need one of two things

A- Run at lower pool fees: will require more reserves, longer ROI, not guaranteed to work.
B- Wait until there is real incentives for miners to actually use a community-owned pool.

Now B is only going to happen when one or some of the large pools try to do something stupid, miners will HAVE to move to a more honest pool, not for the sake of BTC, but for the sake of protecting their own investments since keeping BTC attack-free give it value, the opposite takes away from it, so they will be forced to use an honest pool.

What are we betting on right now is the fact that none of that large pools that make millions in profit will attempt anything stupid, we also assume that they take the right security measures so that nobody can have access to that hashrate and use it to do something stupid with it, hopefully, this remains the case forever.

I also think Bitcoin cannot be centralized due to its decentralized nature. The entire network is built on a peer-to-peer system without central authority or control. There is no person or entity has control over the network, making it impossible to centralize. Personally, I would like to keep it that way because people see Bitcoin as a viable investment option because of its decentralization, which allows users to have more control over their money, make transactions without the need for intermediaries, and have no restrictions with the government regulating body.

I see, so the discussion about the concept got kinda drowned out by the arguments over math.  The high-level stuff definitely go beyond my comprehension, but the theory seems sound enough.  It's difficult to tell what level of engagement there might be with limited RoI, but it's worth looking into.

Is it better to continue discussing the concept in this thread, rather than resurrecting the 2020 one (and possibly the resulting math argument again)?

Plus while the "attacking-entity" is secretly investing a lot of money accumulating ASICs and booting them up to start mining Bitcoin, in theory, the entitly might have found out that it's actually better to be honest and be rewarded in Bitcoin. Haha.

What we plebs might have misunderstood about Game Theory is, it's about finding an equilibrium to do what's good for the individual, and the group. If the Game Theory behind Bitcoin is flawed then the network would probably have already died.

That's not true, discussion about 51% on altcoin (which can be mined with computer) also exist. Few example,
Monero: https://finance.yahoo.com/news/monero-under-51-attack-threat-182244867.html
Ethereum (in past it use PoW): https://ethereum.stackexchange.com/questions/542/during-a-51-attack-what-can-the-attacker-actually-accomplish
Chia: https://www.reddit.com/r/chia/comments/nk50x2/cost_of_51_attack_on_chia/

And in practice, average people still can't mine profitable if they have high electricity price or old generation of CPU/GPU.


P2Pool (on Bitcoin network) is dead. Although it's doing well on Monero community where it has about 5% hashrate.

How would you define what critical percentage is? Bitmain has had roughly half the global hashrate for many years, via the different pools it operates and/or owns directly or indirectly, the same thing can still happen, the same person could be operating 5 different pools with hashrate combined reaching 51% without anyone knowing.

Given that the general public is so paranoid over this 51% figure, no pool would allow itself to grow this big on a single domain, they can keep half the hashrate and proxy the other half to another pool they own and you won't know that the same pool has found half the blocks under different random text in the coinbase and a different node that propagated the blocks.

In fact, many of the small pools are nothing but a proxy, you think you are doing Bitcoin a favor and point your gears to a small pool only to find out that your hashrate is being redirected to the same pool you left because you thought it was "too big".


The community is well-rested, to be honest,  . P2Pool is a dying project (assuming it's not already dead), more than 80% of blocks are found by a few large PPS pools, even the large PPLNS pools have started to fall apart.

There is something that many people chose to ignore or simply not understand, the majority of miners will follow where the steady profits are, mining is a very difficult business and you are more likely to end up losing money than making any, adding variance by mining to P2Pool or any other small pool that doesn't guarantee you daily payouts just increases your risks.

Eventually, the safest place as far as payout is concerned would be large pools that pay PPS, and to own and operate a large PPS pool you will need a lot of BTC in reserves  to avoid bankruptcy as well as to operate, while I don't view the current mining distribution between pools as a risk, the only way to mitigate that would be launching a community PPS pool, there is no other way around.

You just can't tell miners to start making less profit or to be exposed to more variance just to improve decentralization, you need to offer them a similar product owned by the community then they will be more than happy to join it.

Three years ago I proposed something to Theymos;  forum funds could be used to start a PPS pool, he had some good reasons why that wasn't needed then, alongside some other valid points, and I do seem to agree with him, we are not at a high-risk level whereby we need to start such a pool.

He proposed a greater idea which I studied further and found that could work, I created a topic regarding my discussion with him which could be found here "Catastrophe Bonds Based Mining Pool ".

The amount of computing power and resources required to carry out 51% attack will surpass the resulting monetary advantage. Moreover there are thousands of nodes globally distributed that are maintaining the Bitcoin network. So its very difficult rather impossible to centralised the Bitcoin. We haven't seen any instance where some centralised entity has taken control of Bitcoin network and that makes the network more robust.

That's the point of the Game Theory behind Bitcoin, there may or may not be. How much should an entity spend to start a 51% attack on Bitcoin? If the entity is willing to spend millions to profit in millions more, then OK. But in Bitcoin that probability is much MUCH lower than what you're trying to suggest because it makes more sense to be honest and be incentivized in Bitcoin.

The only ones which could be interested in doing this are the governments, they have money to spare as they can literally print as much of it as they want or they could raise taxes, and they do not care about profiting from such move as once again they can print all the money they want anyway, so governments could actually try to attack bitcoin on the future in such a way, however if they tried to do this then this would tell us the global adoption of bitcoin is going incredibly well, otherwise governments will not be that desperate to try something like this.

Gone are the days when individuals could mine bitcoin on their laptop or desktop computers, assuming mining bitcoin on just about any type of computer was still possible, even though the reward be really small, I would have suggested individual mining to be a solution to the problem, in fact, if it was possible to mine bitcoin on laptops and desktop computers, we wouldn't have to be discussing this topic right now, because with billions of computers mining bitcoin in millions of home, the bitcoin network will be the highest decentralized network in the world, and there can never be a time when a 51% attack will ever be possible because with billions of computers mining, it will be practically impossible for any computer to gain up to 5 percent of the total network's hashrate, not to talk of 50 to 51 percent.

In my opinion, there will be no more interested to do the 51% attack against Bitcoin because it's too expensive if they're going to do it nowadays. Imagine you can buy the best miner with $3000 but only gives you a less than 1% of total mining hash rate. It's not worth it while they can only do is just to manipulate the transactions. This attacks commonly happened on small crypto or newly launch crypto because most of them only have few miners.

One hypothetical idea was when Bitcoin is mass adopted, to start building houses with one miner included. And the electricity cost could not penalize the family buying the house, or course. But this way, could be good to spread many miners around the world. Also, this could encourage neigbouhrs to have their own "mini-pools" and help with decentralisation. This is utopic for now, of course, but it was an idea! With many flaws for sure but it's still an idea. xD

By centralization what I understand from your point is that Bitcoin proof of stake possible risk right?

If that be it then we must be sincere with ourselves that Bitcoin will become more centralized and security threatened if it network adopts the proof of stake instead of the current proof of work POW vs POS,  because both have their unique features that place the miners in various categories and conditions.

But meanwhile bitcoin centralization is a deliberate act to weaken fhs Bitcoin's dominance as a decentralized financial tool.

A mining pool is just a gathering of hashes from different parts of the world.  It is where the miners are pointing their hashes and does not mean that only one person owns all those hashes that is on the mining pool.  Mining farm owners can prevent such centralization by pointing their hashes on the different mining pools, or evenly distributing hashes across all the mining pools.

I believe there is always a program monitoring each mining pool and will trigger an alarm or notification is some mining pool are reaching the critical percentage, and this can be solved by diverting some of the miners of that mining pool to other mining pools.

Bitcoin is the decentralized crypto currency and it's the only reason for the survival of bitcoin over a decade in the market.It's not possible for the bitcoin to get centralized,because the control of bitcoin was not in single hand.The mining of bitcoin was limited now,So the bitcoin was not get into the centralized form.The country can do some control over bitcoin by legalization of bitcoin in their country,but the full control of bitcoin can't hold by any people.

Until now, there hasn't been any recorded instance of a 51% attack on the Bitcoin network, as far as I'm aware. It's mostly a theoretical fear rather than a reality. Any mining pool attempting such an attack would require substantial energy and mining equipment. However, other miners would likely prevent such an attack from happening, which is one of the reasons why Bitcoin remains decentralized. Nowadays, carrying out such an attack is not an easy task, reaffirming Bitcoin's decentralization.

Simply, this can result to Monopoly.

Encouraging decentralization entails many things like structural changes, stiffening rules of larger mining pools thus reducing the numbers of large mining pools that may have tendencies to overwhelming the Bitcoin to the point of wanting to be in control. In other words promotion of smaller mining pools to ensure even distribution.
We also have technological developments that will encourage decentralization too and many others favourable actions .

51% attack is no longer the main risk. After blackrock etf approve they will have incredible amount of btc and all their fiat to manipilate the industry.

You pretty much explained it all. Doing a 51% attack at this point doesn't make any sense because of the cost, and let's not forget that probably the value of bitcoin once the news is out would plum, another reason why it would be pointless. You control something that lost a lot of value and costed you a lot of money, it doesn't make any sense unless you just want to actually ruin bitcoin and you don't care about the profits/losses.