Cryptocurrency mining may be prone to both industrialization and centralization, despite attempts to keep the field decentralized.
A new post by Sia lead developer and Obelisk mining founder David Vorick goes into detail on the current state of specialized cryptocurrency mining machines known as ASICs. According to Vorick, ASICs can be developed profitably for just about any mining algorithm in existence, and flexible machines can still be built that can adapt to a network with frequent algorithm changes mean specifically to throw ASICs off:
“The ultimate conclusion here once again wraps back to the capabilities of ASICs. I think there are a lot of people out there who do not realize that flexible ASICs are possible, and expected that routinely doing small hardforks to disrupt any ASICs on the network would be sufficient. It may be sufficient sometimes, but just as algorithms can attempt to be ASIC resistant, ASICs can attempt to be hardfork resistant, especially when the changes are more minor.”
The post goes into detail about the manufacturing process, as well as the manufacturer-skewed mining market that allows large companies with quick turnaround times to continually make profits even on machines that are quickly obsoleted. The sum message is of the relative futility of attempting to resist the industrialization of mining, and with it the rise of a few relatively centralized players in both mining and the manufacturing of mining equipment.
Mining centralization can be a threat because of 51% attacks
The industrialization of cryptocurrency mining has been cause for concern in the past because of the potential security risk it can pose. If a single entity comprises over 50% of the network’s hashrate, the entity could act maliciously to tamper with transactions on the network. This is known as a 51% attack, and its risk is the primary reason for encouraging mining diversity.
A similar situation happened to the Monero network, which resisted ASICs until early 2017 when miners were developed and used in secret, leading to a persistent vulnerability before the recent choice to frequently chance the proof-of-work algorithm, according to Vorick:
“It’s estimated that Monero’s secret ASICs made up more than 50% of the hashrate for almost a full year before discovery, and during that time, nobody noticed. During that time, a huge fraction of the Monero issuance was centralizing into the hands of a small group, and a 51% attack could have been executed at any time.”
However, as previously outlined, Vorick remains pessimistic on the possibility of avoiding the creation of ASICs long-term through regular hard forks.
How likely are 51% attacks from dominant mining pools?
The risk of acquiring a majority of a network’s hashrate, while real, may not always present a real risk of a 51% attack, however. According to CoinText CTO Vin Armani, a malicious instance is less likely:
“If you control over half of the hashpower, there are a number of things you can do. Most people are concerned about double spends. But a benign miner who controlled 51% is actually more likely to use that control to be sure the network is secure.”
Due to economic incentives, Armani believes that an entity that invests significantly in a cryptocurrency network would likely avoid any action which could damage the value of its investment:
“So, for instance, it is possible that Jihan Wu (Bitmain) controls over 51% of the BCH hashpower at this moment. He has every economic incentive to protect the network, since it brings him millions in profits, which he would lose if he pulled off a malicious attack (since the price of BCH would immediately plummet).”
According to Armani, the real risk of 51% attacks would arise not at this early stage of development, but at later stages once major hostile players get involved, and at that point such an attack would be extremely difficult and expensive:
“On established networks, it really isn’t a threat at the moment. Anyone who has acquired, for instance, 51% of the hashpower on Dash, has invested a significant amount of capital. It’s beyond the bounds of reality they would be doing that just to destroy Dash. In the future, after the state has exhausted ALL other options for fighting crypto, we might see governments trying such attacks, but it will be incredibly expensive by that time. My opinion is that such attacks will never be more than theoretical.”
While Dash remains a strict proof-of-work coin at the moment, adding a collateralization requirement for mining has been discussed as an option for the future. In some iterations this would require miners to hold a certain balance of Dash to be able to continue to mine, adding another hurdle for potential attackers. In addition, Dash Labs is looking into custom-made open-source hardware for masternodes, which can seek to avert a situation where manufacturing of hardware becomes centralized around a few large players.