Drop in Bitcoin (BTC) Mining Increasing Network Risk
Bitcoin (BTC), Cryptocurrency, Mining–As previously reported by EWN, the drop in Bitcoin hash rate which has accompanied the most recent price fall throughout the month of November has raised a debate over the cause of decreased mining, and the potential ramifications.
Some Twitter users pointed to an outright abandonment of cryptocurrency mining, with drop in valuation from $6500 to the recent lof of $3500 (including nearly $100 billion wiped in market cap from all coins) as being the catalyze to spark a mass exodus in miners. Given the state of the cryptocurrency industry just one year ago, where mining rigs were in high demand and even established companies were jumping ship to join the mining craze, the end of 2018 has seen a compelling shift in attitude.
A video published last week, which shows hundreds of expensive mining rigs sitting unused in a warehouse, sparked an uproar in the crypto community, with some believing the footage to be doctored in an attempt to publish more FUD at an already low point for the market.
Most updated footage – After BTC crashed blow $4000… miners in China are selling S7 for 5CNY per pound 🤣🤣🤣 pic.twitter.com/nV2Nk8lsLw
However, other outlets have vouched their support for the incidence, giving some credence that the industry of crypto mining is in decline with the falling prices. In some respect, it’s not surprise. The cost of equipment in conjunction with the amount of electricity required to mine at a profitable rate had inevitably led some once enterprising individuals to cut their losses and exit the industry. But, as many have pointed out, there could also be a general shift away from BTC at present, with the mainstay of miners seeking out more profitable coins in the interim until Bitcoin prices show a more promising outlook.
For the remaining miners, the decreased competition means an increased chance of coin rewards. However, for the industry of cryptocurrency and the integrity of Bitcoin transactions, the decreased rate of mining and hash rate for the top currency by market cap also increases the network risk for attack. While the direction of the industry was, to the regret of many fans of decentralization, trending towards consolidation prior to the recent dropping hash rate, the most recent exodus has led to a worsening effect.
At least 100,000 individual miners have shut down, according to Autonomous Research LLP. Fundstrat Global Advisors LLC estimates that about 1.4 million servers have been unplugged since early September.
Malachi Salcido, head of Salcido Enterprises–one of the largest mining groups in North America–says that the falling profitability of crypto mining is shaking out the weak hands, but also causing a concentration of power for the remaining few,
“We are entering in the phase when there’s a flushing out of the market. There will be relatively few operations that come out the other side.”
Bitcoin’s network relies upon the decentralization of mining services. With hash rates falling 36 percent since their peak in August, and problem-solving difficulty down 10 percent, the conglomerate mining networks are raking in newly minted coins, but also posing an increased risk of a 51 percent attack. With less variable rigs contributing to the network’s hash rate, the opportunity for one mining group, or a coalition of miners to gain control of the service also greatly increases.
Not only would controlling miners hold the lion’s share of new coins being produced, but they would also be able to influence the transaction landscape–with the ability to inflate fees, reverse specific transactions, or halt them all together.
Many within the industry have pointed to the mutualism of the Bitcoin ecosystem as being sufficient to prevent such an attack. If miners put a stranglehold on transaction services, the overall usability of the platform plummets which in turn leads to fewer transactions (and fees) in addition to a falling valuation for BTC. According to this logic, miners benefit as much as users for maintaining a fair ecosystem.
However, only time will tell the effects of such consolidation of power. Without true decentralization in its pocket, the appeal of Bitcoin and similar cryptocurrencies begins to fall to that of traditional fiat.