One of the key requirements for the Bitcoin network to be secure is that mining, the distributed process ter which the network processes and secures transactions, voorwaarde be decentralized, that is to say, there should be no single individual or entity with more than 50% of the computing power of the entire network. If the condition is not met, then Bitcoin essentially collapses into a less efficient monster of a centralized database, where the majority shareholder can unilaterally block and even switch sides transactions at will. Most of the time ter Bitcoin’s history, this condition has bot met, albeit miners do organize themselves into centralized groups known spil pools, there have bot a broad array of pools to choose from, and usually no single one has had more than a quarter of the network’s power. Overheen the past few months, however, a fresh mining pool has emerged that has come to be a serious threat to this status quo: The mining pool’s hashpower very first enlargened to 30%, then 40%, and now the situation has kasstuk a peak where the pool controls an amazing 45% of the network – just bashful of the 50% needed for Bitcoin to turn into a system of de-facto centralized trust.

What Is Mining?

Ter order to understand what is going on here, it is significant to very first understand the concept of mining, and specifically mining pools. The purpose of the Bitcoin network is to maintain a decentralized database of what the balances of all of the accounts te the Bitcoin system are, the way that it does so is by releasing a series of “blocks”, with one fresh block coming out every ten minutes and containing all of the transactions that have taken place during that time. Each block builds on top of the previous block, and the idea is that once a transaction is deep enough te the “blockchain” it becomes very hard to switch sides, since an attacker would need to commence from the block before the one containing the transaction and then outpace the surplus of the network combined from there. Miners are the ones who release thesis blocks, every time a miner does a round of the mining computation there is a toughly 1 ter Ten Nineteen chance that the miner will succeed, create the next block, and get a 25 BTC prize. Anyone with computing power can download a Bitcoin mining software package and become a miner, albeit te practice specialized hardware is also required. Because of this random mechanism, the chance that a miner will mine a block within a given timeframe is almost exactly proportional to the miner’s computing power.

However, there is one problem with this setup: the 25 BTC prize is utterly uncommon, and most puny miners, if left to mine on their own, would never detect any blocks at all. Mining pools fix this ter the following way. Instead of a miner mining for themselves, the miner mines for the mining pool. Ter exchange, if a miner detects a block that is almost valid (say, such that 1 te 10000 “almost valid” blocks are actually valid), the mining pool pays the miner 25 BTC divided by 10000, minus a puny toverfee. Because the process is random, miners cannot cheat, they can either mine for themselves, and have a 1 te Ten Nineteen chance of getting 25 BTC, or they can attempt to generate blocks that give the mining pool the prize instead, and then every time they run the computation they have a 1 ter Ten 14 chance of being eligible for, say, a 0.0024 BTC prize from the miner assuming a 4% toverfee. Like an inverted gambling webpagina, the mining pool uses its large size to absorb the randomness of the mining process and ensure for its users a more even prize.

The Problem

Via much of Bitcoin’s history, even with the centralization of mining pools, mining has bot fairly decentralized. The picture on the right shows the mining pool distribution ter June 2012, with a large array of pools where no single one possesses more than about 15% of the total network hashpower. Now, however, a single mining pool,, controls toughly 40% hashpower, and the next largest, BTC Guild, controls about 25%. That is to say, if and BTC Guild merged, they together would have a high degree of control overheen the Bitcoin network. They would not be able to do everything, they cannot, for example, force a transaction from A to B without A’s signature. However, they can block or switch sides transactions at will. Even with only 40%, can switch roles transactions with some success, by the elementary laws of randomness, a mining pool with 40% hashpower will periodically seem to have overheen 50% hashpower for a few hours at a time, ter fact, there have bot instances where GHASH mined six blocks te a row. And this worry is not just theoretical, there is some evidence that is actually being used to attack gambling sites, which are more vulnerable to this kleuter of attack than merchants because they have no capability to simply cancel an order if the associated transaction gets reversed. is also interesting because it is affiliated with, a webpagina that sells what is known spil “mining contracts”. Right now, almost all Bitcoin mining is done with specialized hardware, which users buy from Bitcoin mining hardware manufacturers and then run at huis. But this setup is not optimal, it is possible to save on shipping costs by never actually shipping the miners, and instead keeping the miners te house and letting the users configure them remotely. From there, one can go a step further: not require users to bother with the concept of “Bitcoin miners” and simply sell them “hashpower”, that is, users can pay 0.04 BTC, waterput ter a Bitcoin address, and receive the revenue from 1 gigahash (ie. 1 billion rounds of mining computation vanaf 2nd) of mining power directly, with no need to think about any of the details of what is actually going on. This is what a mining contract is, and users are increasingly opting to purchase thesis contracts from CEX instead of bothering to configure their own miners. And spil a result GHASH’s market share is rapidly enlargening.

The Solutions

Given that this is a threat to the most fundamental security assumption behind the Bitcoin network, the next question is: what do wij do about it? Fortunately, there are several solutions. The very first, and most visible, is to support decentralized mining pools. Decentralized mining pools serve the same function spil regular mining pools, but use their own blockchain instead of a centralized mining service to prize miners. The most advanced decentralized mining pool is p2pool, and is relatively effortless to setup.

The process is spil goes after:

  1. Install any Bitcoin miner (eg. bfgminer)
  2. Point the miner to P2Pool and commence running. Te bfgminer’s case, the directive line instruction is bfgminer -o -u address -p password , where address should be substituted by your Bitcoin address and password can literally be kept spil “password”.

Even if P2Pool hits 51% market share, it will not be able to actually block or switch sides transactions, since the mining pool is decentralized and so its power is vested ter the network spil a entire. However, p2pool has two weaknesses. Very first of all, because p2pool is its own blockchain, it consumes significant resources, making it difficult to install on many computers. 2nd, even with the setup guide described above, it may not be easy-to-use enough. What is needed is for someone to make a one-click script that installs bfgminer, configures bfgminer, installs p2pool and installs a directive line application and a graphical user interface that simply accepts a Bitcoin address and starts mining.

Given P2Pool’s inefficiencies, another solution is to improve the state of centralized mining pools. This can be done te two ways. Very first of all, someone can write a software package and release it spil open source that essentially permits anyone to run their own top-quality mining pool. Ter the world of virtual private server hosting, for example, such a software package already exists: HyperVM. Spil a result, wij see hundreds of puny VPS providers all rivaling to provide the best and most high-quality possible service, and costs are coming down quick, Microtronix, for example, is now providing a basic 128 MB server for spil little spil $11 vanaf year. If a similar, high-quality package existed for mining pools, anyone would be able to set up their own mining pool and wij could have a much more diverse mining pool ecosystem even without P2Pool.

2nd, there is a protocol knows spil getblocktemplate where, instead of miners simply mining whatever the mining pool tells them to mine, miners themselves come up with the next block. When a miner attempts to voorkoop a prize for an almost valid block (or “share”), the mining pool checks if the block prize went to the pool and if it did pays the prize to the miner. Note that, once again, miners cannot cheat, the miner needs to determine whether the block will pay to themselves or to the pool before making an attempted mining round, so it’s not possible to at the same time rechtsvordering shares from the pool and voorkoop the utter prize from blocks that are actually valid. However, the problem here is the same spil with p2pool: miners need to have an actual Bitcoin knot running, which consumes resources and has its own setup costs.

Eventually, there is another solution, which looks at a specific chunk of the puzzle: Theoretically,, because it by itself has enough hashpower that its block prizes are fairly even, should be solo mining and not cooperating with a pool. Te practice, however, this will not toebijten. The reason, provided ter an official postbode by CEX itself, is this:

Ter October the development of the “GHash.IO” project wasgoed transferred to the CEX.IO development team.

The team worked hard to entirely rewrite the entire GHash.IO engine, spil well spil perform other stability and responsiveness improvements, which you all may have noticed.

Wij have also liquidated the 3% toverfee and released merged-mining altstem coins to the miners.

Thus, CEX is working very closely with GHash, and has no reason to abandon it. The solution here is thus the same spil the very first solution suggested for centralized mining pools: create an open-source software package that lets anyone create their own omschrijving of CEX, and thereby quickly outcompete it. also has the power to solve this problem themselves, all they need to do, right now, is dual their fees for all users, and set the toverfee to automatically adjust upwards again if the pool’s hashpower exceeds 33%. The solution will make the Bitcoin community glad because the pool’s hashpower will decrease to a more reasonable percentage, and it will likely even increase’s revenue at the same time.

Ultimately, for the average user, there is the more extreme option of switching to another currency. Litecoin, for example, is very similar to Bitcoin, but its developers are working very hard at making it p2pool-friendly. Peercoin and Nxt use an alternative mining mechanism called “proof of stake” where users “mine” with money rather than computing power, albeit this alternative mechanism is relatively unproven, it is utterly promising because it is essentially unlikely to set up a mining pool with it.

Related movie: Bitcoin To 5K? Technical Analysis [Bitcoin Today]

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