Bitcoin has risen as a major player in the crypto world. It is a huge chain that supports millions of users and billions of transactions. Many supporters of the project cite decentralization as a reason for adoption.
However, the project might not be as decentralized as some may say. This begs the question: Is Bitcoin actually decentralized?
What is Bitcoin?
Created in 2008 by the anonymous Satoshi Nakamoto, much of the hype surrounding crypto stems from Bitcoin. It was the first cryptocurrency to make a name for itself.
Bitcoin is a peer-to-peer network that operates on its own blockchain. This means that you can send Bitcoin tokens to any individual across the globe through the Bitcoin network. This is possible through the use of wallets, which are a way for individuals to store crypto.
Millions of transactions on Bitcoin’s blockchain need to be verified to prevent fraud and maintain order on the chain. Currently, Bitcoin relies on a proof of work system to verify these transactions in a decentralized way.
Mining on Bitcoin’s Proof of Work Model
Proof of work is a system that uses computing power to decide which transactions are legitimate. Anyone across the globe can contribute computing power to the chain and help verify transactions. Those who contribute computing power are called “miners” and are given rewards for doing so.
Every 10 minutes, a “block” is uploaded to Bitcoin’s blockchain. The miners that verify transactions in that time frame will receive Bitcoin for compensation. This is called the block reward. All of the transactions are placed into an irreversible and immutable ledger.
Proof of work contributes to decentralization because it allows anyone with the necessary resources to contribute to the chain. There is no single entity or group that controls the chain. And, transactions can be verified by anyone across the globe. However, if 1 group controls too much power on Bitcoin’s network, it can be problematic.
What’s a 51% Attack?
A 51% attack can occur when 1 single group of miners controls more than 50% of the chain's computing power. If 1 group controls a majority of the computing power, they can “attack” the chain. This would allow the group to stop all transactions on the chain and “double-spend” tokens. This means that they could send a coin and then reverse it without verifying it.
While a 51% attack could prove damaging, if not fatal to the Bitcoin chain, it has not happened. There is a high probability that it will never happen. This is because the energy and computing equipment required to own 51% of the Bitcoin network’s computing power is nearly impossible for a single group to attain.
However, there is some worry about mining pools going rogue and committing a 51% attack.
What Are Mining Pools?
Mining pools are a way for miners to receive more predictable rewards for verifying transactions. Currently, 6.25 Bitcoin tokens are distributed every 10 minutes as the block reward. While this may seem like a lot, when it is distributed amongst miners it provides very little, if any, returns for a majority of miners.
Mining pools combine the computing power of many individuals to consistently receive block rewards. Because they take up a larger portion of the total computing power, they can receive consistent and predictable rewards. While this helps individual miners, it can detract from the decentralization of the Bitcoin network.
When you join a mining pool, you essentially give your computing power to the pool. This means that a single group can control a large portion of power on the Bitcoin chain.
If 1 pool were to ever attain 51% of the chain’s computing power, they could execute a 51% attack. Luckily, the largest pool, F2Pool, only owns around 15% of the total computing power, a far stretch from the 51% needed.
It’s also likely that miners that use pools will stop using these pools if the platform decides to attempt a 51% attack. Those who see this malicious behavior can remove themselves from the pool, lessening the proportion of computing power that pool has.
Is Bitcoin The Most Decentralized Cryptocurrency?
Simply put, Bitcoin is far from being the most decentralized cryptocurrency. Its mining and mining pool system allows single groups to own large portions of the computing power on the network.
Other tokens use different systems to verify transactions that promote decentralization, such as sharding and proof of stake. These systems spread power on the blockchain across many more individuals and limits the amount of power 1 group can have.
However, there are many cryptocurrencies and projects that are much more centralized than Bitcoin. Bitcoin offers a peer-to-peer network, which is something not all projects offer. It is also the largest project with ownership spread across the globe. Because of its size, it is undoubtedly decentralized, but there are some other projects that offer a higher degree of decentralization.
How to Buy Bitcoin
Bitcoin is the most popular cryptocurrency, with an average daily trading volume of over $32 billion. Because of this, it’s very easy to buy. The coin is offered on all of the major crypto brokerages.
Opening an account on a major crypto brokerage is very simple and typically only requires an email or phone number and a funding source. eToro, Webull and Coinbase are the best crypto brokers due to their simplicity, security and focus on education.
However, each broker is slightly different, so make sure to do some research to decide which exchange is the best for you.
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Bitcoin China Ban & Decentralization
In September 2021, China reiterated a ban on all cryptocurrencies. They cited the possibility of fraud for their decision. This caused many miners to leave China and pursue mining in other parts of the globe. Before the ban, about half of all computing power was concentrated in China alone.
Because the miners were forced to leave China, this allowed the computing power on the Bitcoin chain to be more evenly distributed across the globe. This furthers the decentralization of Bitcoin, as the computing power is no longer concentrated in 1 geographical location. Instead, miners are more evenly spread around the world. This limits the power and control any single country or location can have on the network.
Frequently Asked Questions
Questions & Answers
On average, it takes about 10 minutes to mine 1 Bitcoin.
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