Bitmain the Chinese mining giant is poised to raise funds from an initial public offering (IPO) and is faced with a lot of attacks and criticisms. This mainly stems from the fact that the company seemingly has no business raising more funds if it had managed its massive profits well.
Bitcoin was programmed to be protected by a network of computers located all over the world. The network is protected as long as one entity does not have the capacity to launch the “51 percent attack” which is possible if such entity takes control of 51 percent of the hashrate in the network.
Satoshi Nakamoto, the inventor of Bitcoin felt that with decentralization, this would be an unlikely scenario, nevertheless, big corporations have been investing in Bitcoin mining and Bitmain, one of such companies already controls a giant chunk of Bitcoin mining pools.
Big Miners Push Bitcoin Network Towards Centralization
Bitmain is the largest manufacturer of ASIC miners. The company recently showed that the 51 percent mark is possible as it reached 42 percent through the cumulative hashrate of two of its subsidiaries.
The issue of 51 percent hashrate control is a big deal within the Bitcoin community though even if an entity is able to achieve that, it realistically has no incentive to compromise the network since it is its means of making money.
Miners confirm transactions and are rewarded through fees paid by the senders as well as get paid for mining new blocks.
Even The Big Profit Wasn’t Enough?
What is surprising however is that a company that is controlling so much of Bitcoin hashrate is practically broke, so broke that it is seeking funding outside the crypto industry to enable it maintain its market dominance.
CT reported that
“Bitmain earned $701 million in net profit in 2017, while various estimates show that the annual income for the same period ranged from $1 billion to $4 billion. A gross income claimed for the first half of 2018 exceeded the one received for the whole previous year and comprised $743 million, despite a significant fall in the crypto market.”
Bitmain owns two of the largest mining pools, Antpool and BTC.com. Antpool recently found 14.6 of all the bitcoins mined while BTC.com found 27.2 percent. The two companies though operating independently are owned by Bitmain, a situation that has raised concerns among many Bitcoin watchers.
The company also owns stakes in Bitcoin Cash mining. Antpool currently mines more than 10.6 percent of the BCH while BTC.com mined 10.4 percent a few months ago.
In practice, Bitmain can increase its hashrate on the Bitcoin network by converting the sure of those equipment dedicated to Bitcoin Cash mining. The two coins use the same algorithm and if Bitmain does that, they would still find it difficult to dominate Bitcoin mining and control the network.
The reason is that Bitcoin is more difficult to mine and converting their BCH mining hardware will not significantly increase their hashrate on the Bitcoin network.
The main concern about an entity having 51 percent hashrate is that if a hacker takes control of their network, it could compromise the Bitcoin network.
Centralization has always been contrary to Bitcoin ideology and no one anticipated big companies growing their hashrate to the point of centralizing its mining and confirmation processes. Another consequence of Bitcoin centralization is that many altcoins will suffer the same fate.
The likelihood that this would happen is low. Bitmain earned more than $3 billion last year and is interested in ensuring Bitcoin continues to thrive.
To guarantee the security of the network and a balanced reduction in their hashrate, we may likely see the company sell some of their miners to competitors. This will enable these companies bump up their hashrates are prevent dominance by one mining pool.
Bitmain Losing Market Faster than It Imagined
It is possible also that with a lot of work ongoing in mining research, another company could develop a more efficient miner that would get ahead of the others and tilt the balance away from Bitmain.
This is already happening and the reason Bitmain is hard pressed to raise more funds through an initial public offering.
The coin community is concerned that this is happening. The main reason however is that the company invested a large fraction of its earnings from Bitcoin into Bitcoin Cash (BCH). The token has seen lost more than 80 percent of its value pulling Bitmain down with it.