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Is Bitcoin hard to understand?
For the novice, Bitcoin can appear to be very hard to understand, but the reality is, once you learn a few basics it becomes much easier. In this article we aim to help you understand mining decentralisation. I think, it is important to have a good knowledge here because, if you are invested in this space, or plan on buying Bitcoin, or any coin for that matter, you need to know the basics to be able to make better informed decisions. Bitcoin mining is still a mystery to most so understanding what is happening there will give you a competitive advantage when making any decision in this space.
What is Bitcoin decentralisation?
You hear the term decentralisation all the time, and for many, the whole appeal of Bitcoin and most Crypto projects is that they are decentralsied. The term refers to the situation of nobody being in control of the protocol/project and this is very much the case with Bitcoin. Let’s look at Bitcoin and the main hard forks, Bitcoin ABC and Bitcoin SV and more specifically the mining of these coins. Who runs the mining for each and what impact does this have on how centralised/decentralised they are? Then in turn how does this affect the coin, its price and power structure.
This is important to look at right now as we have some of the biggest players in Crypto flexing their power or hash rate. Craig Wright of Bitcoin SV, yes, the man who claims to be Satoshi is on record saying he would crush Jihan Wu and Bitcoin ABC. Jihan runs Bitmain, the biggest producer of mining equipment, so that is a huge statement!
Wright claims, he has enough money and hashing power to mine empty blocks on the rival Bitcoin ABC chain, and effectively bring it to a halt.
If he can do this, where does that leave us in our understanding of mining, blockchains and decentralisation? We will try and explain this in non-technical terms for you.
The basics of how Bitcoin works
- Developers. These people write the code. Bitcoin by its open source nature offers the opportunity for anyone to comment and propose changes to the code of the coin. This helps with decentraisation.
- Nodes. When you make a transaction on the Bitcoin blockchain a node transmits this to the miners. A node is a full copy of the Blockchain that you can have on your PC. The Bitcoin SV coin/project does not agree with this structure as they think nodes should not be run by individuals but should be run by companies from large data centers.
- Miners. Miners secure the network with their hash rate. Hash rate is essentially computing power. Through cryptography they prove their work which is essentially burning electricity to mine blocks on the blockchain. We have seen 600,000 miners go off line this week as the price reached a point where it is no longer profitable for them to mine. Most estimates range in the 3,000 to 4,000 USD range for the cut of point for miners. There is argument that mining is too centralised. Lets look at who is mining Bitcoin and its hard forks.
This chart shows who is mining Bitcoin. Miners could be an individual or a mining company. You also have companies mining just for themselves in private pools. An example of this is Bitfury. The 20% others is a block of miners who mine privately. BTC.com Antpool and Viabtc are run by Roger Ver https://en.wikipedia.org/wiki/Roger_Ver and Jihan Wu. https://en.wikipedia.org/wiki/Jihan_Wu
These two people are central to the Bitcoin cash project also, more specifically Bitcoin ABC as it is now known, after the hard fork.
This chart shows who is mining Bitcoin ABC. ABC is one of the new coins created from the Bitcoin Cash hard fork.
As mentioned above the three pools that also mine BTC mine ABC. BTC.com Antpool and Viabtc are run by Roger Ver and Jihan Wu. You can draw the conclusion that mining competing Blockchains for these people is a business strategy. Bitcoin is the most profitable coin to mine otherwise they would not be mining it. You can also see that more mining pools and miners mine Bitcoin than Bitcoin ABC. This shows that Bitcoin is more decentralised. This is important as if one miner has more than 51% of the hash rate you could have attacks on the chain and they could reverse transactions.
The reason miners mine is to make a profit and it’s a great way of accumulating Bitcoin anomalously. You need to purchase miners specific to coins. The above three Bitcoin charts are all running miners that can mine any of these three coins.
Why would miners mine a coin at a loss? They could believe that in the future their coin will be the dominating coin. Bitcoin SV is an example of this. The team behind it are expending money with their mining and marketing efforts and firmly believe that they are the real Bitcoin. The coin was effectively started by Calvin Ayres https://en.wikipedia.org/wiki/Calvin_Ayre company, Coingeek mining, with development work initiated by Craig Wrights Nchain. It is not a very decentralised project currently but could be in the future at least from a mining point of view.
Bitcoin ABC is more decentralised than SV and the vision for the coin is different to Bitcoin and SV. Mayor industry players are involved and it is a project that is well funded.
Bitcoin is by far the most well known, decentralised and used cryptocurrency at present. The fact no person or company runs it make it unique, special and very viable in my opinion. All three have a claim to be Bitcoin and these projects will only ramp up that rhetoric. Interesting times ahead. We are just getting started.
Check out our real time Bitcoin Price Charts where you get a clear overview of what is going on with the Bitcoin price!