Smaller Pools Are Diversifying the Bitcoin Mining Industry

Bitcoin mining has become an advanced competitive market alongside securing the network. Over the years the mining sector has changed significantly from home operations, mining pools, and large data facilities churning out blocks. While observing mining pools over the years, there’s been a few times where skeptics have believed mining was quite centralized. However, more recently mining pool distribution has divided significantly with the mining industry taking new form once again.

Also read: Why Jim Harper Is Dead Wrong on Bitcoin

The History of Mining Farms and Pools

The mining economy has come a long way since the inception of bitcoin. When the cryptocurrency began bitcoin supporters could mine utilizing their central processing unit (CPU) and graphics processing unit (GPU). When GPU mining became popular, individuals began creating mining farms and the network’s hashrate distribution started its first phase. Around 2010 people became more aware of how powerful mining farms had become, with people like Artforz claiming 20-30% of the network hashrate.

During the fall of 2010, the mining community was growing significantly, and the formation of groups mining together took place. One of the first mining pools was Slush’s Pool and following other pools such as Ghash.io and BTCguild emerged. As bitcoin became more popular and its value increased, the creation of large data mining facilities in countries like China and Iceland appeared. These groups claimed significant amounts of the network’s hashrate, and some observers became skeptical of mining centralization.

Chinese Pool Domination Shifts

Hashrate Distribution over the past two years has seen a large concentration of Chinese mining companies. According to the New York Times’ Nathaniel Popper, at one point 70 percent of bitcoin transactions were processed by four Chinese mining pools. Speculators have attributed this to the region’s low electrical costs, and mining equipment is manufactured in great number there. Additionally, Bitmain founder Jihan Wu explained to the New York Times that China expects its regional companies to be on the forefront of technology.

Recently mining distribution has changed quite a bit with many smaller pools taking a piece of the hashrate pie. At present hashrate distribution among pools has become more diverse than ever. Mining pools such as Bitcoin India, 1Hash, Gogreenlight, and many others have captured small percentages of the network’s computing power. Five large pools process roughly 63 percent of the network and 19 smaller groups encompass the rest. This is a notable change since last year where many of the pools were more concentrated.

Hashrate Distribution Will Never Stay Static

There are multiple reasons the mining industry is going through changes. The price per bitcoin has risen exponentially with its highest consecutive value in over three years. This is attributed to mining continuing to be profitable even after the reward halving. Because the value has increased, many other players have been able to enter the mining community. Moreover mining operations are becoming more visible in countries like the U.S., and India. Other larger pools have dispersed into smaller groups and some operations like KNC Miners have been liquidated.

The mining community and industry will likely continue to change over time. Right now the hashrate distribution seems to be dividing up into smaller factions, and this may continue to develop. Chinese pool operations are still commanding a large portion of the network’s computing power. However, smaller factions of Chinese pools like HaoBTC have diversified the distribution amongst the larger operations.

As technology advances in application-specific integrated circuits (ASIC) the mining community is sure to continue to change. This past July at the D10E event in San Francisco bitcoin expert Andreas Antonopoulos told attendees ASIC 14nm chip improvements are great for decentralization.

“It’s a very good thing for decentralization,” explained Antonopoulos. “What it does is it extends the shelf life of mining equipment from 2-3 months of usable life cycle to almost two years, which levels the playing field among all participants in the system.”   

Alongside mining equipment improvements the digital assets’ price value and reward halvings will always shift the mining industry constantly. There will always be many variations to bitcoin’s hashrate distribution, with many cryptocurrency proponents hoping it remains decentralized.

What do you think about bitcoin mining pools currently breaking up into smaller factions? Let us know in the comments below.

Images courtesy of Shutterstock, BI Intelligence, Andrew Clifford, and Blockchain.info

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