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For many, Bitmain’s recent announcement of the realization of a major data center in northwestern China served as a reminder of the level of mining centralization in Bitcoin. Although the Beijing-based company will not own the entire complex, and the whole facility will not necessarily be dedicated to bitcoin mining, in theory over half of all hash power securing the Bitcoin network could be concentrated in a single data center.
For some, this is reason for concern. If bitcoin mining is dominated by one or even several data centers, these could represent a single point of failure — something Bitcoin was specifically designed to avoid.
Much of Bitcoin’s future may therefore depend on a reversal of the trend toward further centralization. And there is reason to believe the trend may indeed reverse.
Centralization Concerns
In 2009, the first year of Bitcoin’s existence, there was little difference between running a node and mining. The typical Bitcoin-Qt wallet allowed regular users to invest spare CPU power to try and earn some coins.
By the end of that year it was first suggested that GPUs — mining with video cards — could be more effective. In response, Bitcoin’s inventor asked users to refrain from doing so — at least for the time being.
“If everyone bought faster machines, they wouldn’t get more coins than before,” Satoshi Nakamoto wrote on Bitcointalk. “We should have a gentleman’s agreement to postpone the GPU arms race as long as we can for the good of the network. It’s much easier to get new users up to speed if they don’t have to worry about GPU drivers and compatibility.”
Regardless, the shift towards GPUs occurred throughout 2010. And with it, bitcoin mining increasingly shifted from regular users to dedicated specialists. Setting up mining rigs in basements and attics, a lot of these specialists started out as hobbyists. Over time, however, the competitive nature of mining ensured only the most efficient of them remained profitable.
The introduction early in 2013 of field-programmable gate arrays (FPGAs) was a first real step towards the professionalization of mining. From 2013 onward, application-specific integrated circuit (ASIC) chips really changed the game. The specialized hardware, which required a significant investment to produce, transformed the mining ecosystem into an industry.
This is when data centers became an attractive option. It makes sense to have few specialists oversee large mining farms f…
Is Bitcoin Mining Destined for Data Centers?
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