How Cryptocurrencies Share the Load
Let’s say you own a . How do people know it belongs to you? Well, somewhere in the , there is a block that contains a valid line denoting a transfer of a from another address to yours. At the time that that transfer occurred, it was transmitted out to the network, so that all miners would add your transaction to the next block they were (as long as there was a fee to incentivize them). One miner found the nonce that generated the target hash, and added his block onto the chain, which contains your transaction, and this block was transmitted out to the network, so your transaction is out there for all to see, and confirmed by the network.
The important parts here are when things are transmitted out to others. This is the core concept that relies on—the distributed nature of their system. Why is this an important point? It gets rid of a the third party that would act as a middleman for transfers, like a bank. This is for a few reasons, including that these middlemen can charge high fees and, more importantly, can be untrustworthy.
As you can see above, the process that allows for the decentralization of relies heavily on the miners—the decentralization comes from the idea that there are many miners, all separate entities. But as time goes on, this is becoming less and less true.
Mining Pools
When playing the lottery, you never win, right? Well, it’s at least pretty unlikely, and is certainly unprofitable. But this isn’t always true—maybe you remember the about the . It’s all very impressive, but there’s a key takeaway here: they had to invest in many lottery tickets to make a profit. can be very similar.
pools for started forming very quickly once the the currencies gained popularity. In the same way that the MIT students bought many tickets and split the reward between them (they wouldn’t have necessarily profited had they not bought enough tickets!), miners join together in groups to mine blocks, covering more nonces faster, and splitting the reward when one of them finds the target hash. pools have taken over the of popular at this point: with respect to ’s , all but 18–23% of blocks are mined by known pools, and of that percentage, it’s likely that only a minuscule fraction of it is represented by singular people. Looking at the cumulative hash rate for the top pools in both , we can see that it doesn’t take many of them to create a majority.
Resisting the Pools
I should note that some are taking measures to make more distributed again. Specifically, . The security lead on the project says the change will “postpone the level of ASICs on our network for at least a year on our network, or perhaps more.” In the meantime, GPU will be able to hold its own in blocks. While this of course isn’t a permanent solution, and ASICs will likely pull ahead fairly quickly, it’s a start.
While many boast their decentralization as a selling feature, it seems they may be more centralized than they care to admit. I’m not trying to claim that these pools would be able to band together to take over a network—that would require an incredible amount of coordination, and rely on the ignorance of an absurd amount of miners who are part of these pools. But I’m pointing out a potential flaw, seeing as there is a clear push away from these pools (at least from ), but not much that can be done.
Published at Mon, 04 Mar 2019 20:08:58 +0000
