Cryptocurrency

Behind the two mining pools controlling 51% of the global hash rate

Hull Invest

While most of the market is focused on Bitcoin price volatility, it seems that a much bigger problem is being overlooked.

Ethereum centralization has been one of the hottest topics in the cryptocurrency industry since the network moved to proof-of-stake, with many critics criticizing this reliance on only a small number of centralized validators. It warns about the dangers of cryptocurrencies with high market capitalization.

Since China’s much-needed mining ban, the centralization of the Bitcoin network has largely disappeared from mainstream discussion and has become the focus of a niche group in the mining space.

However, Bitcoin centralization is a market-wide issue, especially now that only two mining pools generate the majority of blocks.

CryptoSlate surveyed Bitcoin’s global hash rate distribution and found that more than half of them came from Foundry USA and Antpool.

The two pools have each mined more than a quarter of Bitcoin blocks in the last 10 days. Since mid-December, Foundry USA has mined 357 blocks and Antpool has mined his 325 blocks. Foundry’s block production accounted for 26.98% of the network, while Antpool accounted for just under 24.5% of total block production.

bitcoin hash rate distribution mining pool
Chart showing the estimated hash rate distribution among the largest Bitcoin mining pools (Source: Blockchain.com)

Antpool has been at the forefront of Bitcoin mining for years, producing almost 14% of mined blocks in the last three years. Foundry, on the other hand, is a relatively new name in the mining space. However, it quickly rose to one of the top 10 pools by hashrate, accounting for 3.2% of blocks mined over the past year.

A closer look at Antpool and Foundry USA shows an amazing level of centralization and a web of interconnected companies that effectively own half the network.

Foundry — DCG’s Mining Behemoth

It took less than two years for Foundry USA to rise to prominence in the Bitcoin mining space. The mining pool is owned and operated by the eponymous Foundry of the Digital Currency Group (DCG). Created 2019.

By the end of summer 2020, Foundry was already one of the largest North American Bitcoin miners. Apart from mining, the company provided equipment financing and procurement. By the end of 2020, Foundry helped source half of all Bitcoin mining hardware delivered to North America.

Foundry’s huge success as an equipment purveyor and miner is directly due to DCG’s influence in the cryptocurrency industry.

This venture capital firm is one of the largest and most active investors in the space, backing over 160 cryptocurrency companies in over 30 countries. DCG’s portfolio The industry’s largest registry of players including Blockchain.com, Blockstream, Chainalysis, Circle, Coinbase, CoinDesk, Genesis, Grayscale, Kraken, Ledger, Lightning Network, Ripple, Silvergate and more.

Foundry is a wholly owned subsidiary that acts as a one-stop shop for all of these companies’ mining needs. Some have speculated that the DCG companies are contractually obligated to do all mining through Foundry’s pools, given the rapid increase in Foundry USA’s hash rate. However, it is important to note that neither DCG nor any company in the portfolio has confirmed this.

The mining ban introduced in China last year has helped as well.

Forced away from China’s abundant and cheap hydropower, miners were looking for alternative locations that would provide at least some of the profits and provide a more welcoming regulatory environment.

The United States was presented as the perfect relocation destination, offering miners a wide range of location and power options. And having a mining pool the size of Foundry USA right next door certainly wasn’t a problem.

Antpool — Bitmain Exclusive

Founded in 2014, Antpool is one of the oldest active mining pools on the market. Antpool frequently accounts for more than his quarter of the world’s hashrate and rarely makes it into the top 10 of the largest mining pools.

Pool’s success lies in its perfect vertical integration. The pool is owned and operated by Bitmain, the world’s largest mining hardware manufacturer. The company behind the Antminer series provides its pools with the latest and most efficient bitcoin hashers to help keep your cryptocurrency profitable even in the coldest winters.

Bitmain’s influence on the global cryptocurrency market has led many to speculate that the company is mandating its large buyers to mine on Antpool. With both Bitmain and Antpool headquartered in China, many are also concerned about China’s impact on the bulk of Bitcoin’s hash rate.

Commercialization of cryptocurrency mining

It is important to note that mining pools are different from private mining operations. Unlike private miners, pools represent the joint hash rate of many machines owned by different entities.

Owners of mining machines or hashers divide the profit generated by the mining pool according to the size of their contribution.

Just because Foundry USA owns a quarter of Bitcoin’s hashrate doesn’t mean that DCG owns all the machines that generate it.

Foundry, however, provides the foundation and roof for its customers’ mining operations. The company’s vulnerability rocked a significant portion of the Bitcoin network, potentially allowing thousands of smaller miners and machines to spring back on their own if shut down.

The same applies to Antpool.

The speed of centralization imposed on the industry by these two entities is even greater when looking beyond Bitcoin alone.Antpool is pool We also support other cryptocurrencies such as Litecoin (LTC), ZCash (ZEC), Bitcoin Cash (BCH), Ethereum Classic (ETC) and Dash (DASH).

Foundry Delivers Enterprise staking Support for Ethereum (ETH), Solana (SOL), Polkadot (DOT), Avalanche (AVAX), and Cosmos (ATOM). The company does not disclose how many assets it manages.

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