Tag: blockchain strategy

On Thursday, blockchain technology company Blockstream revealed details related to their massive Bitcoin mining data centers in Quebec, Canada and Adel, Georgia. The facilities account for a combined 300 megawatts worth of energy capacity, and they’re currently available for hosting enterprise-level mining activities, in addition to Blockstream’s own mining operations.

Blockstream plans to open their facilities to smaller scale miners in the future. For now, two of their active customers include Fidelity Center for Applied Technology and LinkedIn founder Reid Hoffman.

The size of Blockstream’s mining facilities cannot be overstated. According to Blockstream CSO Samson Mow, the facilities would account for roughly 6 exahashes of Bitcoin mining power if used at full capacity with the latest ASIC mining hardware. This would have equated to 10% of Bitcoin’s total network hashrate less than a month ago, according to BitInfoCharts. However, the Bitcoin network hashrate recently skyrocketed to around 80 exahashes this week.

In addition to their mining centers, Blockstream will soon launch the first mining pool with a focus on putting more power back into the hands of individual miners via the BetterHash protocol.

Blockstream Concerned About Bitcoin Mining Centralization

According to a company blog post, Blockstream first got into Bitcoin mining due to concerns around the centralization of the industry back in 2017. At that time, the activation process for Segregated Witness (SegWit), which was a capacity increase and bug fix for the Bitcoin network, had become politicized by Bitcoin miners in the eyes of many Bitcoin developers and users.

Concerns related to Bitcoin mining centralization were recently discussed on a panel at the Bitcoin 2019 conference in San Francisco. Genesis Mining CEO Marco Streng explained why Bitcoin users should be more alarmed about the level of centralization in mining, while longtime Bitcoin developer Matt Corallo did his best to point out the issue may not be as bad as it seems at first glance.

Notably, Blockstream CEO Dr. Adam Back, who was cited in the original Bitcoin white paper, also spoke at the conference regarding his thoughts on the future of Bitcoin and other cryptocurrencies alongside Yugen Partners Chief Scientist Dr. Scott Stornetta, who was also cited in the Bitcoin white paper.

Putting Power Back in Miners’ Hands

In addition to pushing for the geographic decentralization of Bitcoin mining, Blockstream’s upcoming mining pool should be helpful due to its use of BetterHash. The BetterHash protocol, which was developed by the aforementioned Corallo, solves a key issue with mining centralization in that it allows individual miners to choose which transactions go into new blocks rather than the mining pool operators.

While Bitcoin mining is rather centralized in terms of mining pools, the picture looks much better in terms of the diversity of entities that are actually operating the hardware. Putting individual miners in control of transaction selection means collusion in terms of transaction censorship, blockchain reorganizations, or other types of 51% attacks on the network would be much more difficult.

Braiins also recently announced a new mining protocol, called Stratum v2, that offers a similar upgrade in terms of the decentralization of transaction selection (based on Corallo’s work).

When asked why Blockstream decided to go with BetterHash rather than Stratum v2, Blockstream CSO Samson Mow stated, “Stratum v2 seems to still be in the discussion phase, and we started with BetterHash months ago.”

Some critics may argue that implementing BetterHash while also developing large Bitcoin mining data centers may be a bit of a contradiction in terms of promoting decentralization, but Mow pushed back on this argument when reached for comment.

“I don’t believe Blockstream Mining poses centralization risks,” said Mow. “If anything, Blockstream Mining serves to decentralize the Bitcoin mining ecosystem in many ways. We’re self-mining with just a small portion of our available power, with the rest allocated to customers, and we have plans to make the hosting service available to smaller miners that otherwise would not be able to mine effectively. Also, by leveraging the BetterHash protocol in our mining pool, all of our customers can run their own full-nodes and build block templates. This means the pool cannot use their hashrate for censoring transactions or falsely signaling readiness for Bitcoin protocol upgrades – which has happened in the past as with SegWit2x.”

Even with these concerns around Bitcoin mining centralization, some U.S. lawmakers are convinced they would not be able to ban Bitcoin.

On the other hand, Facebook’s Libra cryptocurrency project would be much easier to manipulate, regulate, and control. That said, multiple members of the Bitcoin industry have pointed out the roundabout ways Bitcoin could benefit Facebook’s Libra.

That said, even if improvements are made to the decentralization and censorship resistance of Bitcoin from a technical level, the reality is the digital cash system still faces a serious regulatory issue in terms of its use as a payments mechanism due to the way in which the crypto asset is taxed.