According to the Canadian financial agency Canaccord Genuity Group, Bitcoin has become more decentralized. In the February report of the company, we read, for example, that the cryptocurrency was less decentralized in the first period of operation. However, this has changed.
According to the company, in the last few years, “increased competition” among producers of mining systems has led to a reduction in centralization. Canaccord experts remind that in mid-2014 the GHash.IO pool controlled about 50% of the total hash btc value, thus making the largest cryptocurrency “vulnerable” to the potential attack of 51%.
Today, in 2019, no single pool controls more than 20% of the hash value. Five pools range from 10% to 20%, while the other smaller ones control less than 10%.
Decentralization is the key to progression
Bitcoin’s enhanced decentralization is part of its development, but there are several other factors that support this process. The most important is the “commercialization of bitcoin mining systems”, i.e. the creation of ASIC [application-specific integrated circuits], which allowed for wider competition on the cryptocurrency mining market. Bitmain, for example, noted the growing competition from Canaan Creative due to the “inability to create a significant, better alternative to Antminer S9,” says the company.
Relying on ARK Invest’s research, the report further states that Bitcoin’s centralization, as measured by the Herfindahl-Hirschman index (HHI), has been steadily declining from ~ 3000 in 2013 to ~ 1200 now.
The HHI index is used to measure market concentration. An HHI value of less than 1500 is considered a “competitive market”, HHI of 1500 – 2500 is considered “moderately concentrated” and HHI above 2500 is considered “highly concentrated” – the company explained.
The beginning of this year Ethereum Classic was subjected to a 51% attack. The market reacted quickly with strong declines. During the day, the cryptocurrency rate fell by about 7 percent. The market capitalization of the coin amounted to approximately USD 534 million and its daily turnover was approximately USD 139 million.
The occurrence of an attack and, at the same time, double spending meant that a single miner or pool has more resources than the rest of the network. The dominant miner can then redefine the transaction history in the network, and use the same funds twice in various transactions.