Bitcoin mining pools, coalitions of miners who pool their resources in an attempt to successfully mine the next block on the Bitcoin blockchain, are the lifeblood of the world’s best performing cryptocurrency network.
Multiple pools are concentrated on the Bitcoin blockchain at present time and this is in fact necessary to ensure sufficient decentralization: to make sure that mining power is broadly distributed.
If one miner gains too much influence – more than 51% of the overall hashrate, for example – they have the potential to wreak havoc on the Bitcoin blockchain as they would control the majority of the network.
As has been witnessed in the past with chains like Ethereum Classic and others, this can lead to double-spend attacks, where miners essentially have the power to siphon user funds from the network.
Diversity in Bitcoin Mining
There are currently over 16 mining pools directing their computing power to the Bitcoin network, each with varying degrees of influence denominated in the amount of hashrate they control.
Ideally there would be an even distribution of hashrate among miners, as such decentralization amounts to robust security, meaning no individual or pool can wield an undue level of control. Yet according to live data from hashrateindex.com, two Bitcoin mining pools presently account for over 54% of global hashrate.
Without casting aspersions, a potential worst case scenario could see these pools combine their resources and gain control over the Bitcoin network at large.
Fostering diversity among Bitcoin miners has long been a top priority of those in the blockchain space, and now, some forward-thinking projects are looking for ways to incentivize the diversification of Bitcoin miners for the benefit of all who value the chain.
Incentivizing Decentralization Among Miners
Upcoming project exSat aims to integrate Layer-2 functionalities with the Bitcoin blockchain, enabling NFTs and decentralized finance (DeFi) on the network (which until very recently has been impossible).
Focusing on Bitcoin mining hashrate specifically, exSat introduces a novel system of incentives which could help even out the concentration of mining pools on the network, and by doing so, enabling a more decentralized, distributed hashrate.
In a typical blockchain, two main functions are carried out by miners and node operators. The former are responsible for securing the network by solving complex cryptographic puzzles (Proof of Work) to validate and add new blocks to the chain, and receive BTC block rewards and transaction fees from blocks they successfully add.
Node operators, meanwhile, are responsible for submitting block headers and raw data to synchronize with successfully mined blocks and the blockchain as a whole.
The unique tweak offered up by exSat sees miners offered the chance to also become synchronizers – by offering incentives in the form of exSat’s XSAT token. These synchronizers play a key role in establishing data consensus, ensuring the data they submit is valid and accurate.
By offering monetary rewards for partaking in data submission as synchronizers, exSat hopes to encourage more mining pools – including smaller ones – to participate as synchronizers and help distribute the Bitcoin hashrate among a larger quantity of pools.
exSat also provides a Hybrid Consensus Mechanism which incorporates not only Proof-of-Work (PoW) but Proof-of-Stake (PoS). This gives would-be miners greater opportunities to become participants in the Bitcoin mining process and earn monetary rewards for their efforts. In turn, this also broadens the make up of Bitcoin miners, helping to foster a more decentralized and distributed hashrate.
As more mining pools and validators join the network due to the incentives provided by exSat, the concentration of hashrate may spread more evenly across a larger number of participants, lessening the potentiality of a 51% attack.
Blunting Mining Pools’ Power
Over time, the broader distribution of rewards and participation could lead to a more sustainable and decentralized network, reducing the risk of Bitcoin mining centralization falling into the hands of a few dominant mining pools.
In summary, the introduction of incentives for synchronizers and validators – combined with a hybrid consensus mechanism – has the potential to blunt the power of leading Bitcoin mining pools. By promoting broader participation and offering additional revenue opportunities, projects like exSat can encourage a more decentralized and competitive mining ecosystem, enhancing the overall security and resilience of the Bitcoin network.
