Chapter 8. The Future of Bitcoin Mining

In this chapter, we will speculate about the future of Bitcoin mining. This is rather a fun chapter, as we can't be absolutely certain about what will happen. We can however, make educated guesses about where things may be headed. We will explore the possible ways in which mining may either become very centralized or go the opposite way and become decentralized.

There has also been a concern that mining pools have become too big. However, we think those concerns are not justified. After Ghash.IO became, for a brief moment, the biggest pool with more than 50% of mining power, miners moved their rigs to other pools and Ghash withered to about 3% of the network hashing capacity.

The following topics will be covered in this chapter:

• Further centralization of mining power

• Decentralization of mining and mining chips in all kinds of devices

• Eliminating Proof of Work (PoW) in favor of something else

• Can we do without mining?

Overview of the current state of mining

As of early 2016, mining is on its way to become more centralized. Mining equipment manufacturers are increasingly mining for themselves and not selling the hardware to consumers. Some of the bigger manufacturers now command 15% or more of the network's total hashing power. Recently, there has been a big run up of the hashing power. In the span of about a month, the hashrate jumped from 500 to 750 peta-hashes. In January 2016 it reached one exahash, and currently (Feb 2016) it is around 1.3 exahashes. (see https://blockchain.info/charts/hash-rate for up to date information).

Further centralization of mining

It is quite possible that mining may become more centralized. In the summer of 2016, the block reward will halve to 12.5 BTC; this development may move some of the smaller miners into an unprofitable territory; hence, forcing them to stop mining. As a result, the big miners may end up with a bigger overall percentage of the hashrate. Manufacturers of mining equipment constantly put out better, faster, and more efficient hardware. There is a consolidation happening in this space; thereby, creating larger mining entities. Quantum computing may also introduce a miner with enormous hash-power, and of course, if the BTC value, as measured against local currency, skyrockets, then it will encourage more investment into mining equipment from large established mining firms.

Hardware arms race

In order to mine profitably, your hardware needs to be better than that of your competitors. Currently, Bitcoin mining ASIC manufacturers are in a kind of hardware arms race, trying...

Decentralized mining is key

Bitcoin's reputation as a decentralized system depends upon keeping the mining fairly decentralized. Although it is highly unlikely that a miner will act maliciously in the event of obtaining the majority of the network hash power. However, it is better for everyone involved that no single miner reaches this threshold. A decentralized mining system gives a lot of participants in the Bitcoin experiment peace of mind. After all, there is some serious money at stake now. Bitcoin's market cap, as of early 2016, is around 7 billion US dollars.

Elimination of PoW

Proof of work may not be the best algorithm to secure a blockchain-based system. There are aspects of PoW that leave a lot to be desired. However, PoW is a good way to distribute a digital currency. Perhaps PoW will be replaced in the future by something different, but at this time we cannot say for certain what it will be.

Inefficiency of PoW

Proof of Work is really inefficient; it wastes a lot of electricity and computing power. However, it is inefficient by design. We do want competition between miners because that is precisely what makes the blockchain ledger secure. Miners keep other miners honest because they are all competing for the same block reward. We believe that PoW is the best way to distribute a cryptocurrency, initially. Perhaps after bitcoins are fully, or almost fully, distributed, it will make sense to switch to another algorithm to secure the blockchain.

Replacement of PoW

Currently, we are not sure what should be used instead of PoW. There are candidates...

Can we do without mining?

Mining is the way by which we currently secure the Bitcoin blockchain and in conjunction with PoW it is used to distribute the newly minted bitcoins. But is mining, as we know it today, necessary? Can we do away with it and replace it with something better, something perhaps more efficient?

Replacing or eliminating mining

Theoretically, we can eliminate or replace mining with some other form of securing the blockchain. As discussed earlier, by replacing PoW with Proof of Stake we could eliminate mining, as we know it today. Of course, a secure blockchain is the number one concern, so we must be sure that switching to another algorithm will not compromise security. Therefore, mining as we know it today is technically not necessary, but it is the only secure way we know of today. There has not been enough research done regarding other algorithms to switch Bitcoin over to something else. Unless some amazing new way of securing the blockchain gets discovered soon, we...

Summary

In this chapter, we explored what may be in store for Bitcoin Mining. Mining may become more centralized and there is evidence to support that argument. At the same time, it is also possible that mining will become more decentralized. We are already seeing steps being taken in that direction. PoW, while being a good algorithm for initial distribution of a digital currency, may not be the best way to secure the blockchain in the future. We will probably see PoW being replaced by a different algorithm.

We hope that you have enjoyed reading this book as much as we have enjoyed putting it together. Mining is an exciting topic to discuss and even more exciting to practice. We encourage you to put what you have learned in this book into practice by setting up a miner of your own. You can set up and configure the hardware and software required by following the instructions in previous chapters. You will gain some knowledge and you will be able to say that you were a part of Bitcoin mining...