Cryptocurrency operates in a much different way than traditional money. One of the aspects that stands in great contrast to fiat money is how cryptos are produced. On the whole, new crypto coins are generated through mining, wherein miners solve difficult mathematical equations to place a record of a transaction as well as gain new coins.

As time goes by, a specific issue with mining becomes more and more prominent. It even calls into question the future of cryptocurrency in general or at least one of its core principles.

What Created the Problem

It’s become abundantly clear that there’s a lot of money to be made with cryptos. One needs only look at, for instance, Bitcoin’s historical value to see this. Even with its volatility, it has been able to turn a hefty profit with a relatively minor investment.

Well, that was, at least, the case some years ago. Things aren’t so simple anymore. While it was once comparably easy to pay dividends with crypto mining, the state of this market has grown highly inhospitable to newcomers.

Why did this happen?

In short — because of mining pools.

Mining pools are collaborative mining operations that employ an enormous amount of computational power. And they can get crazy good at it. At one point, Bitmain’s pools controlled 41% percent of Bitcoin’s hashrate (though Bitmain has come to hard times recently).

These pools came about largely as an adaptation to proof-of-work. The idea of solving complex problems to change a blockchain works well for keeping it safe in trustless interactions. However, they take a lot of energy to solve, so it naturally follows that the one with the most computational power gets the lion’s share of coin mining.

Pools took that logic and ran with it, creating the cutthroat climate we see today. Essentially, it’s now exceedingly hard for an aspiring mining business to get its foot in the door, and practically impossible for the average Joe to do so.

The ills hardly stop there, unfortunately. The mining system has led to what could be considered its main problem to date.

The Problem: Centralization

With entities like Bitmain holding the monopoly on mining, an argument can be made that this kind of environment has encouraged centralization, a notion many cryptos were meant to oppose. This has raised concerns about potential abuses of power.

Should a single pool control the majority of a blockchain’s hashrate, it in a way becomes its de facto ruler. This could result in what is commonly referred to as a 51% attack. Though it cannot exactly do whatever it pleases, the attacker can play the system in a few ways.

For one, it becomes possible for this pool to control what data goes into the blockchain. This enables it to effectively freeze the blockchain, or deny any addition that doesn’t suit them for whatever reason.

Secondly, this group could rewrite the ledger’s history, thus being able to double spend. In simple terms, double spending is the act of using a coin to buy something, and then rewriting the ledger to make it as though you had never spent it in the first place.

It’s important to note, however, that a full-on takeover would be costly, and while large scale cases are few and far between (it has never happened to Bitcoin), it’s becoming more commonplace on smaller blockchains.

If unchecked, this kind of rule over a crypto platform could potentially pose a real threat down the line.

It’s heartening, then, to hear that solutions to this problem do exist. The BetterHash protocol is definitely a step in the direction of redistributing hash power more equally. Additionally, the Proof-of-Stake concept could take the pressure off of crypto competitors, though it’s still debatable if it would perform better than proof-of-work.

And if everything else fails, individuals can take it upon themselves to disperse from the currently most dominant pool, like what happened with Ghash a few years ago.

Bottom Line

Centralization may prove to be the biggest hurdle for crypto mining yet. While proof-of-work remains a sensible solution to many other problems, it also opens the door to power imbalances. Certain measures can and will alleviate the issue, but it’s vital to apply them before it’s too late.