Five Chinese provinces have now announced intentions to regulate or curtail Bitcoin mining activities entirely. Bitcoiners are now cheerleading the process of mining moving West, particularly the United States.
Hashrate moving out of China is likely to happen in one of two ways:
- A large-scale movement toward the United States spurred onwards for a desire for rule of law;
- Or a further decentralization of the Bitcoin hashrate around the world with lots of places picking up some mining.
Regardless of the possibility of Bitcoin mining decentralizing geographically, today’s reliance on pools for organizing hashpower into blocks remains a technical challenge for the network that limits its decentralization. And it seems unlikely that is going to change until updates such as Stratum v2 are available for integration.
Nakamoto co-efficient
One of the most popular methods for measuring Bitcoin mining’s decentralization is the Nakamoto coefficient. The value describes the minimum number of parties needed to capture 51% of a network’s resources. While it can be used for other aspects of Bitcoin, it has proven most suitable for Bitcoin mining where relatively few parties do have sway over block production.
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Before this weekend’s hashrate drop off, Bitcoin’s Nakaoto coefficient has held steady at around 4, as represented by the four largest Bitcoin mining pools (Antpool, F2Pool, BTC.com and ViaBTC). Believe it or not, that’s not a terrible value: Successfully colluding four pools together for a 51% attack is extremely unlikely, if not impossible, given economic incentives.
Yet, it would be better if that value were still higher.
Hashrate relocation
With hashrate moving West, one might think this becomes a possibility. ASICs swimming over the Pacific may subscribe to one of North America’s infant mining pools, such as Foundry, Luxor, Blockware or even MARApool. Indeed, one industry source told Compass that he believes at least three North American pools could have up to 10 EH/s each by the end of 2021.
But it’s important to note how mining pools work and why a continental movement in hashrate may not have the desired change in network decentralization wanted on a technical level: Mining pools can move, too.
Chinese miners who currently subscribe to one of the many China-based pools are likely to continue subscribing to the same pool once back on their feet. All Chinese pools need to do is set up a server connection close to their subscribers' new locations, if they don’t have one already.
All is not lost though for North American mining pools, however. There have been sporadic reports of ASICs making their way into new ownership entirely. Those machines have a good shot at ending up in North American mining pools, such as Foundry, which already has eaten up nearly 5% of the network’s hashrate. If Foundry is able to take a sizable chunk of Antpool or another pool's hashrate, it could improve Bitcoin mining’s Nakamoto coefficient by one tick – not something to smirk at.
