Decentralization is a core ethos of Bitcoin. In this article, I will discuss the importance of keeping Bitcoin mining decentralized with widespread, small-scale mines.
The future is competitive.
Large Bitcoin mines have economies-of-scale advantages and are able to be set up in jurisdictions with the lowest power costs. While large-scale mines do play an important role in the scaling of hash power, it is important to have large- and small-scale mines. Currently, the incentive structure favors relative centralization of mining to large mines.
If mining becomes too centralized, there are several risk vectors that come into play.
- 51% attack: It is easier to coerce 100 large mines to cooperate or shut down, than it is to coerce 1 million small mines to cooperate or shut down.
- State/government compliance: Large mines become beholden to government policies or political pressure.
- Anti-fragility: The higher the centralization, the less robust the network. If Bitcoin is to become the base layer of the global monetary system it needs to be able to withstand any potential threat coming in the foreseeable future. Events such as widespread power outages, world war, global economic collapse, coordinated EMP or nuclear attacks could cause denial-of-service or 51% attack opportunities.
Along with pressure from large-scale mines, small mines also have to compete with the simple economics of reducing bitcoin rewards over time. As the network hash power increases and the block reward decreases, staying competitive in the long run is not a simple task.
Small-scale mines will have to find areas where they can compete among the much
