Is Centralization Of Mining In China A Problem?

Is centralization of mining in China a problem? Advancements in hardware for mining, Moore's law, xenophobia.

I have been thinking about the centralization of mining in China. Vast majority of Bitcoin miners are in China. Is centralization of mining in China a problem?

I am concerned about any form of centralization. I would certainly like to see less centralization, but that doesn’t necessarily mean it is a problem.

The centralization in mining that we have today in China is the result of a very specific technology adoption curve, that went from CPU, to GPU, to FPGA, to ASIC over a period of four years.

With each change in architecture, there was a 10,000x increase in performance, which means the all of the equipment is obsolete within two to three months. Operating under those conditions requires massive capital, and direct as possible access to chip factories.

Selling chips to others doesn’t make economic sense, because If you just keep them, mine for two to three months until they are obsolete, you earn more than if you sell them. Of course, access to cheap electricity is a huge advantage.

All of these factors have created a very steep curve towards centralization, primarily in China. Yet we have now reached 5-nanometer fabrication, which means the days of 10,000x performance increases and two-three month obsolescence periods are over.

Moore’s Law – a law about the pace in growth of processing capacity, is the fastest technological law we had, except that compared to Bitcoin’s transition from CPU to ASICs, was actually slow. It was about 5,000 times too slow.

Over the next two years, we will not see 10,000x performance improvements. We will see a 2 times improvement, and that is really slow. Good old Moore’s law is back and effecting Bitcoin. Instead of equipment being obsolete in three months, it will now have a shelf life of at least two years.

That means miner producers having chips and mining with them instead of selling them, is no longer an advantage. It is no longer advantage simply because you will have all the risks of warehouse operations, government interference, and electricity prices; whereas if you sell the chips, you can make a less risky money.

The factors that led to centralization of mining, all those parameters no longer exist. Mining changed few years ago, when we reached 16 nanometers ASICS. I don’t think the centralization will last.

Mining centralization was an artifact of performance increases and limited shelf life that no longer exist. Those advantages of centralization have now become risks of centralization.

If you put a hundred thousand miners in a warehouse, and you lose power for two days, your entire profitability is wiped out for the month. But if you put a hundred thousand miners in a hundred thousand kitchens, and you use them to heat the room, or you use miner to cook your sausage. No kidding, I actually saw someone cooking hot dogs on an Antminer S7. That was cool.

If you distribute the mining equipment, you then have the advantages of decentralization. If the power goes off in one kitchen, it doesn’t affect anybody, and your profitability is not dependent on anything.

So all of the factors that made Chinese centralization happen, are now being unmade.

I also want to make another point: if mining centralization had happened in Sweden, a lot of people would be a lot less “concerned.” That is not just because the Chinese government is a threat to Bitcoin.

If you think about it, the people who are doing a mining in China, are directly opposing their government by doing it, and they are taking enormous risks. They are entrepreneurs of the finest capitalist attitude, who should be applauded for their incredible engineering and operational skills. They are not their government. They will resist and fight hard to maintain independence. We should applaud that, not fear it.

Somehow, I think if they were Swedish, we would be less concerned. So there is an element of racism and xenophobia in this. There is an element of stereotyping an entire race, and I think that is wrong.

About the author

Satoshi Nakamoto

We developed bitcoin. This post is derivated from aantoop yt video with same headline under cc by license.

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