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Bitcoin mining is less centralized than assumed

A study by the University of Cambridge brings surprising insights into the global mining ecosystem. Is mining really as centralized and polluting as the general public thinks?

Cambridge University published the second Cryptoasset Benchmark Study in December 2018. This study examined topics such as mining, technology security, regulations and global usage of cryptocurrencies. A team from the Cambridge Center of Alternative Finance collected data from 180 entities over several months. These included start-ups, established companies and individuals from 47 different countries.

The aim was to analyze new forms of alternative finance. The aim was to create a global snapshot of these emerging ecosystems, which are having a profound impact on the established financial system.

The study was particularly insightful in the field of crypto mining and was able to dispel some doubts. Two major criticisms, centralization and environmental pollution, performed surprisingly well. The study also uncovered a number of interesting points.

Because it turned out that the mining ecosystem is more decentralized than previously assumed by the general public. The variables geographic distribution of the mining centers, concentration of computing power (hash rate) and selection of hardware manufacturers were taken into account. All of these factors were more decentralized than they were a year earlier.

According to the study, cheap electricity, a stable political environment and friendly regulation for cryptocurrencies have the greatest influence on the location of mining centers and pools. Mining centers and mining pool operators exist all over the world. However, the fastest growth of these operations took place in the United States and China.

The study showed that the 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 emerging in regions that offer inexpensive hydropower generated electricity. Some existing companies are even relocating to these regions.

The analysis of mining pools also revealed that ten percent of miners are responsible for almost 70 percent of the hash rate of a pool on average. As a rule, one percent has around a third of the pool’s total hash rate. There is definitely still room for more decentralization here.

The market for mining hardware ASICs (application-specific integrated circuits), a form of mining hardware, are dominated by only a few manufacturers. These devices are specially made for solving a single algorithm. The most widely supported proof-of-work algorithms 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.

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