Bitcoin Mining less centralized than expected

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A study by the University of Cambridge provides surprising insights into the global mining ecosystem. Is mining really as centralized and environmentally harmful as the general public believes?

Cambridge University published the second Cryptoasset Benchmark Study in December 2018. This study examined topics such as mining, security of technology, regulation and global use of crypto currencies. Over a period of several months, a team from the Cambridge Centre of Alternative Finance collected data from 180 entities. Among them were start-ups, established companies and individuals from 47 different countries.
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The goal was to analyze new forms of alternative finance. The aim was to create a global snapshot of these emerging ecosystems, which have a strong impact on the established financial system.

The study was particularly insightful in the area of crypto-mining and was able to dispel some doubts. Two major criticisms, centralization and environmental degradation, scored surprisingly well. The study also revealed some other interesting points.

It turned out that the mining ecosystem is more decentralized than previously assumed by the general public. The variables considered were the geographical distribution of the mining centers, the concentration of computing power (hash rate) and the choice of hardware manufacturers. All these factors were more decentralized than a year ago.

According to the study, the most important factors influencing the location of mining centers and pools are favorable electricity, a stable political environment, and friendly crypto-currency regulation. Mining centers and mining-pool operators exist all over the world. However, the fastest growth of these operations has been in the USA and China.

Is Bitcoin Mining really harmful to the environment?

The study showed that miners are aware of the high energy consumption of proof-of-work projects. Nevertheless, they decide not to switch to a consensus principle with lower energy consumption (such as Proof of Stake).

More than half of all mining centers now have renewable energies in their energy mix. Many centers are located in regions that offer low-cost hydroelectric power. Some existing companies are even relocating to these regions.

Furthermore, the analysis of mining pools revealed that ten percent of the miners are responsible for an average of almost 70 percent of the hash rate of a pool. As a rule, one percent owns about one third of the total hash rate of the pool. There is definitely still room for more decentralization.

The market for mining hardware ASICs (application-specific integrated circuits), a form of mining hardware, is also dominated by only a few manufacturers. These devices are manufactured specifically for solving a single algorithm. The proof-of-work algorithms that are most supported are Ethhash, SHA-256 and Equihash. Other mining hardware, such as graphics cards, FPGAs (Field Programmable Gateway Array) and CPUs (Computer Processors), are much more flexible and less centralized.