New research indicates that leading cryptocurrency Bitcoin has increasingly become more decentralized in recent in the last few years.
Canaccord Genuity Group, a Canada-based financial services firm, has reported that bitcoin’s decentralization has improved dramatically compared to how it was in its early days.
The firm’s February report, the firm notes that bitcoin’s hashrate distribution is far less centralized now due to the “increased competition” being witnessed among leading bitcoin mining chip makers.
According to the Canaccord report, a good illustration of the increased decentralization comes from bitcoin’s hashrate distribution recorded in 2013 and 2014.
It notes that in mid-2014, the leading mining pool at the time- GHash.IO- controlled nearly 50 percent of bitcoin’s total hashrate.
The fact that one mining pool controlled almost half of the network’s hashrate meant that the pioneering cryptocurrency was “vulnerable” to a 51 percent attack.
A 51 percent attack, which hit a few altcoins in 2018, occurs when a miner or group of miners take control of the majority of network’s computing power and thus be able to engage in double-spends or rewrite transactions (or prevent new ones from confirming).
The picture in 2019 is, however, very different from that of 2014. At the moment, there’s no single entity or mining pool that controls more than 20 percent of bitcoin’s hashrate.
Data shows that five mining pools control between 10–20 percent of the computing power, with the rest of the miners controlling less than 10 percent.
Canaccord says that the improved decentralization constitutes a “foundational positive” for the development of the leading cryptocurrency.
The firm adds that, although the change is a result of several factors, “commoditization of bitcoin mining chips” remains the most telling.
Notable is the deceleration being seen in the development and manufacture of application-specific integrated circuits (ASICs), which has allowed for competition among miners for mining rewards.
The Vancouver-based firm points to a scenario that has seen Bitmain face increasing competition from Beijing-based Canaan Creative. Bitmain, the dominant bitcoin mining firm that produced the Antminer S9, has failed to release “a meaningfully superior alternative,” Canaccord said.
Thus there is room for the other chip manufacturers to come, which Canaan Creative has exploited by increasing the sale of its mining chips to a growing number of miners.
Another measure of decentralization in bitcoin’s network comes from the Herfindahl-Hirschman Index (HHI), which is shown to have reduced by more than half.
Bitcoin’s HHI has dropped from a high of 3,000 seen in 2013 to an average of 1,200 the moment, which in terms of gauging market concentration shows that bitcoin’s is competitive.
An HHI of between 1,500 and 2,500 indicate a “moderately concentrated,” marketplace, while that higher than 2,500 is said to be “highly concentrated.”
Meanwhile, bitcoin’s price decline recently hit the record longest stretch in the bear market, eclipsing the previous stretch set during the 2013-2015 period.
However, with its price dropping by about 82 percent in 2018-2019, bitcoin is yet to reach the record 93 percent decline witnessed in the 2011 bear market.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.