Why Centralized Cryptocurrency Mining Is a Growing Problem

In the digital currency mining world, the use of application specific integrated circuits (ASICs) remains a complicated issue. ASICs are chips designed for a specific use (as opposed to general-purpose computers). ASICs can be used for different purposes, such as in satellites and in the transceivers used in cell phones for wireless connectivity.

Within the world of cryptocurrencies, ASICs are designed to mine specific cryptocurrencies or particular hashing algorithms. Essentially, ASICs are targeted pieces of hardware that aim to beat out general graphics processing units (GPUs) by being more efficient (and therefore more lucrative) when applied to the cryptocurrency mining process.

ASICs are so powerful that once a coin-specific ASIC is released, it is usually unprofitable to mine without one, according to a report by Oxen, a company that creates privacy tools that enable untraceable, secure transactions and anonymous transactions.

This is not necessarily bad in and of itself. The problem for many cryptocurrency miners and investors has to do with the way that ASICs are created and distributed. Indeed, there are very few manufacturers of ASICs; this means that the space is highly centralized. When a small number of companies have near-total control over distribution rights to hashing power for a cryptocurrency (via the provision of unequaled ASIC technology), the process of mining itself becomes more centralized.

Concerns About the Prominence of Bitmain

Bitmain is one of the largest and most prominent ASIC manufacturers. Bitmain has repeatedly launched ASIC miners for coins that developers had claimed were “ASIC-resistant,” meaning that the mining process could not be made more efficient through a specialized piece of hardware. However, these specialized ASICs have routinely proven developers wrong, showing that they can, in fact, be more profitable. David Vorick, the lead developer of the decentralized storage platform Sia, said that “you will always be able to create custom hardware that can outperform general purpose hardware,” adding that everyone he has talked to “in favor of ASIC resistance has consistently and substantially underestimated the flexibility that hardware engineers have to design around specific problems.”

The 51% Attack Issue

The impact of this reality on the cryptocurrency ecosystem is that companies like Bitmain will undoubtedly be able to continue developing hardware that allows for more efficient and more profitable mining.

Beyond outmaneuvering other miners, though, ASIC developers could easily end up controlling more than 50% of the hashing power on a blockchain when they have effectively blocked out non-ASIC miners. Once a group controls a majority of hashing power, that group can then abuse the decentralized nature of many cryptocurrencies, even rewriting transactions on a supposedly-immutable distributed ledger. This process is known as a 51% attack.

How to Decentralize Application Specific Integrated Circuits (ASIC) Manufacturing

One way the cryptocurrency world could address the growing threat of centralized mining is by decentralizing the manufacturing process for ASIC miners. A decentralized system would result in there being dozens of companies that create ASIC miners (versus only a couple of companies). This competition would drive prices down and availability up.

Another way to address the centralization of ASIC manufacturing would be to implement a new hashing algorithm that could effectively obliterate all existing ASIC miners. This would level the playing field and thus, open the door to new manufacturers (and potentially give new manufacturers an advantage over established, heavily-resourced players already in the system).

Many cryptocurrency developers have attempted to fork their currencies in an attempt to limit the usefulness of particular ASICs. Time after time, though, this has proven futile, with ASICs catching up to algorithm changes quickly. Furthermore, forking can introduce other problems into the code (and have the unintended side effect of centralizing power with developers).

For Vorick, the ideal solution involves admitting that the hashrate is likely to be centralized among manufacturers of powerful ASICs. “Now that we know to expect a largely centralized hashrate,” he says, “we can continue as developers and inventors to work on structures and schemes which are secure even when the hashrate is all pooled into a small number of places.” Vorick adds: “There are a large number of other incentives and mechanisms at play that keep monopoly manufacturers in line.”