Bitcoin Mining Crisis in China Reveals Need for Universal Node Access
This a guest post by Ryle Goehausen, VP of Engineering at Constellation Labs
Following a flood this week in the Chinese province of Sichuan, the so-called “bitcoin mining capital of China”, crypto trade outlets around the world began reporting that the resulting destruction of thousands of mining rigs were directly linked to a decline in the Bitcoin network’s hashrate from 43TH/s to around 30TH/s. As a majority of Chinese bitcoin mining systems are located in Sichuan, some outlets have even gone so far as to claim that this flood could increase the global demand for new graphics cards, raising their prices.
While many dispute the causal link between the flood and the network hashrate, the fact that this conversation is even happening is emblematic of the larger problem for legacy blockchains —extreme node centralization. Currently, around 70% of the currently available hashing power directed at Bitcoin stems from China, and 42% of that power comes from one organization, Bitmain. While Bitcoin veterans look back fondly on the days where participating in the network simply required a laptop, Bitmain has been benefiting from the growing barriers to entry, cornering the market on rigs, and manufacturing anywhere between 50-80% of the network’s total equipment. Thanks to Proof-of-Work consensus mechanisms, which force miners to battle for the right to mine, legacy blockchain nodes have been consolidated by wealthy and powerful stakeholders manifested in warehouses filled to the brim with expensive computer equipment.
Beyond the obvious harms that come along with increased centralization of a blockchain network, including the rise of plutocracy or even a 51% attack, the unspoken consequence of centralization is a huge missed opportunity for crypto adoption. As cryptocurrency markets mature and speculators cease to become the primary vehicle for industry growth, the case for crypto adoption will need to return to its roots — decentralization and the removal of the middlemen.
In order to foster the adoption of blockchain technology beyond the landscape of crypto enthusiasts, it is critical to think past encouraging users to merely use cryptocurrencies. The global integration of this technology is reliant upon increased user participation in these networks, furthering decentralization. To put it simply, if anyone with a phone has the opportunity to become a fully functioning node, they’re infinitely more likely to actively use and promote the blockchain, cementing the decentralization of the network.
While Bitcoin is unlikely to reach such a level of universal node accessibility, other networks are well on their way, utilizing innovative consensus mechanisms as a driving force. However, while increasingly popular Proof-of-Stake consensus mechanisms allow everyday consumers to circumvent the expensive mining equipment needed to run nodes, the very nature of a staking model presents a new opportunity for powerful forces to capture large swaths of mining rights, once again resulting in centralized systems.
Fortunately, the rise of cryptocurrencies that use Directed Acyclic Graphs (DAGs) — rather than conventional blockchains — represent an opportunity for decentralization that neither sacrifices speed, nor requires costly equipment. Because a DAG requires the use of distinct partitions within its network, the discovery of node collusion and the construction of malicious fork-chains is paramount, giving even the lowest of node participants important validation responsibilities that can hold larger, more powerful forces in check. Even if said forces gain a foothold in the network, it will be the average person, using the passive computing power of their smart devices, keeping them in line.
The case for the adoption of cryptocurrency is clear. Along the way, we must protect the decentralized revolution from sacrificing the elements that differentiate it from the financial systems of the old world; failing to do so may prove to be fatal for the industry as a whole.