What is mining centralization?
What's up, party people? Chris DeRose here, Community Director of the Counterparty Foundation and today I'm talking to you from the Fort Lauderdale Intercoastal in Pompano Beach. Nice little area. I like to hang out every once in awhile when I get the chance. It's kind of close to my home, north of Miami. But, today I want to talk to you about mining centralization. A number of you have asked, 'What is mining centralization?' Today let's talk about that and explore that issue a little bit.
For the people who haven't seen my mining video, 'What is mining?' Mining centralization is this phenomenon that has been levied against the Bitcoin operators and the Bitcoin miners, and it is an accusation that the number of individuals that are mining have been shrinking in number and that this is a problem. So I certainly have my view on this, but that is the gist of the question, is what is going on there and what's happening. So to understand that a bit it helps to go a little bit back in time when Bitcoin was new. In the progression of mining when things started, it was a process that took place on general purpose CPUs. You turned on your computer and it used your Intel processor to mine Bitcoin. Well, over time, that expanded and migrated from your central processing unit to a graphics processing unit.
It turned out that the graphics processors were better than the CPUs at doing these tasks and they were more efficient. And there was a lot of software development that needed to be done to make that happen. There was a bit of an engineering challenge when people were getting that done and made it happen. We saw the difficulty rise in the network and that was another phase in the actual mining process. But in that phase we still had individuals, many of them that were doing mining albeit with graphics cards as opposed to their CPUs. Then you fast forward a bit to where we are now.
Now we have specialized devices that are called ASICs and they've been designed from scratch to only do Bitcoin mining. They are extremely efficient at what they do. And because they are extremely efficient, there's a bit of an economy of scale that started to apply to the mining process and there's also been this new requirement that you need specialized hardware in order to mine. Whereas previously, these were things that were being done with off the shelf parts. So now what has come with that is the accusation that there are fewer miners and that this is somewhat bad for the network. I don't share that view.
I don't think that it's bad at all and I think that it's just a sign of progress, personally. The reasons I don't think it's bad are essentially that we still have plenty of diversity, we have plenty of operators and these operators are themselves running ASICs from a few number of manufacturers. Part of the accusation of mining centralization is that there's fewer designs of processors that are doing the mining. I personally never saw this as a problem because we always had Intel processors or InVideo processors. In fact, I think with ASICs now we probably have more people that are making processor designs, so I don't think that's a fair accusation. Some people have suggested that the processor designers are in somewhat in collusion with the miners.
I don't think that that's true. I certainly don't that will be true in the long term either. I think that the incentive systems work out such that you will find the miners themselves would be a separate process with a separate risk profile and a separate strategy than the fabrication process. So it's highly probable that what we will see is fewer miners. Those miners will be probably in geographic areas that are very conducive to mining. These would be areas where it's cold with cheap or free electricity.
But those people probably or certainly will be different than the miners. Now, in addition to that, and another thing they we are seeing, I think OKCoin is the first to do this, I think what we will start to find is that some of the institutions in the Bitcoin network, companies like OKCoin, BitPay, who knows. Coinbase, who knows? Central banks, maybe of a country, are themselves going to run mines, either at a small loss or to break even just for the purpose of adding stability to the network, and to themselves recoup some money. So I don't think the mining centralization is a problem, but that's an introduction to what's going on. It's important, too, to keep in mind that in the Bitcoin network, mining centralization may or may not be happening but what is the alternative? The people that want to make ASIC-resistant mining strategies are themselves only creating incentives that now favor large botnets, and is that perhaps a healthy and sustainalble alternative? I don't think so. You may have a separate opinion.
Why don't you tell me what it is? You can tweet to me, derosetech on twitter. You can email me, email@example.com, and if you have any other question relating to this go ahead and ask it. I love to hear them from you and love to answer them. Subscribe to the channel if you like this video and keep on checking out my other videos.