The bear market of the last few months has taken its toll on Bitcoin’s mining industry. But perhaps this is a positive effect by creating a more decentralized mining pool. Towards the end of last year Bitmain, the bitcoin mining giant, announced it was closing down some of its centers around the world. This shifted the balance in the mining business.
It is estimated that Bitmain owns 70 to 80% of the market share in bitcoin miners and ASICs, giving them a dominant place in the industry. In addition, Diar reported that in in early 2018, the Chinese company’s mining pools accounted for 53% of Bitcoin’s hash power. That means that in theory, Bitmain had the potential to control Bitcoin with 51%-attack.
However, the downward turn of the market saw a turn in the power of the mining mammoth. At the end of 2018, the company reduced its staff of 3200 people by almost half. It closed down operational centers in Israel and the Netherlands, and it also reduced its Texas-based mining operation significantly. The prolonged drop in crypto prices are blamed for this.
In December 2018, a Bitmaintech development center in Israel closed down and laid off its staff. Gil Glikberg, the head of the center, said: “The crypto market has undergone a shake-up in the past few months, which has forced Bitmain to examine its various activities around the globe and to refocus its business in accordance with the current situation.”
Furthermore, in January it was reported that layoffs at Bitmain Beijing headquarters were around 85%, with the Shenzhen Branch being reduced from 700 to 200 people. Even the CEO Jihan Wu is rumored to have retired from his position at the end of the year.
However, Bitmain is not the only struggling mining body, as other centralized companies are also getting the blow. The Japanese internet giant GMO announced around Christmas 2018 that its mining business was facing great losses and needed to restructure. Their report shows that their mining business suffered a loss of $328 million, caused by the bear market.
What this means is that the mining process of cryptocurrencies and bitcoin in particular is becoming more decentralized. At press time, Blockchain’s hashrate distribution chart depicts that the “Unknown” or anonymous miners make up the greatest part with 21.5% – which is 6% more than one year back.
Analysts determined that mining pools that are either owned by Bitmain or are connected to it (such as Antpool, BTC.com, as well as ViaBTC), are validating significantly less Bitcoin blocks than one year ago. The added up percentage went from 53% of the network’s hash power from early 2018 to 39% this year. This is shown in the graph below.
With more “unknown” or anonymous miners, we presume there is an increase in independent mining activity, creating a more decentralized network. However, this may not necessarily be the case. Since miners have no obligation to specify the details of which pools to which they are contributing to, the anonymous miners could just be working for the bigger pools.
Nonetheless, the demise of mining empires is something good we can take away from the dip in the crypto market. One corporation holding onto such high percentages of the network puts the reigns on the direction of the operation into a single pair of hands. Something like a 51%-attack is something that should be avoided.
Not only does this contradict Bitcoin’s decentralization founding principle, but it also offers the network a single point of weakness should something fail. With more decentralization, the security increases. As Crypto Insider’s evok3d has previously written:
“Centralized networks or systems – like banks and data centers – introduce risks by having to trust, depend and give authority to an intermediary. They are susceptible to surveillance, hacks, and regulations… Centralized, closed systems hinder progress and innovation. They can introduce risks that do not exist in decentralized, open systems.”