Bitcoin becomes more and more decentralized, says new research

Bitcoin has become more decentralized by several measures, according to Canadian financial services firm Canaccord Genuity Group.

In its February report, the company said that bitcoin was less decentralized in its early stages, as evidenced by its distribution in hashrate. However, in recent years, the "increased competition" between the manufacturers of mining chips has resulted in a decrease in centralization.

Canaccord said that in mid-2014, the GHash.IO mining group controlled about 50% of the total bitcoin hashrate, making the largest cryptocurrency "vulnerable" to a possible 51% attack (the control a majority of the hash power allows transactions).

In 2019, however, no mining pool controls more than 20% of total bitcoin resources, with five to 10% of total stocks being 10% and the remaining groups controlling less than 10% of the total.

The increased decentralization of Bitcoin is a "fundamental positive development," said Canaccord, adding that several factors had contributed to this decentralization, but that the most important factor was the "trivialization of Bitcoin's mining chips, as advanced ASIC [application-specific integrated circuits] slow down, allowing for greater competition for bitcoin mining rewards. "

Bitmain, for example, has been facing growing competition from Canaan Creative because of its "inability to produce a superior quality alternative to the S9 Antminer," the firm said. This closer competition, he continued, has led "Canaan Creative to sell its chips to a wider audience of miners who can effectively compete with Bitmain".

Citing ARK Invest research, the report adds that centralization of bitcoin, as measured by the Herfindahl-Hirschman Index (HHI), has steadily declined from around 3,000 in 2013 to around 1,200 currently.

The HHI index is used to measure market concentration. An IHH less than 1,500 is considered a "competitive market", an IHH between 1,500 and 2,500 is considered "moderately concentrated" and an IHH of more than 2,500 is considered "highly concentrated", explained the firm.

Network image via Shutterstock; graph via Canaccord