Large Mining Pools In Cryptocurrencies: A Boon Or Bane?

Large Mining Pools In Cryptocurrencies: A Boon Or Bane?


It is believed that the cryptocurrencies are centralized. But is this true or just a myth? Well, the wisdom of experts conveys that anyone with a computer system can easily manufacture cryptocurrency without much hassle. Moreover, the mining pools that are operating worldwide have become a standard method for minting new coins. Unless you are living under a rock you would be aware that it refers to a group of people working together in order to reduce the volatility of their returns. This is just like investing in a lottery. If you are someone who has bought one ticket (and we assume that there were a thousand tickets), then chances of you winning are one in thousand, but if you join hands with other people and have 10 tickets, then chances of winning increases. The same way the mining pools of cryptocurrency work!

A recent study has shown that despite rise and fall of cryptocurrencies, Bitcoin and Ethereum are the two most prominent cryptocurrencies of the world. Also, it is reported that approximately 55% of bitcoin is mined in data centers and for Ethereum, the figure is 28%.

There is no denying the fact that the centralization of mining pools have their own set of advantages and disadvantages, but the other way round, mining pools are also not easy to ignore! If you are not aware of the advantages of mining pools, then read further and get an insight of the same!

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Faster Processing:

If we take the case of bitcoin mining, then it is seen that every node competes with the rest of the nodes in the network and subsequently gets added to the blockchain. Having multiple mining blocks will be fruitful as they speed up the discovery process.

Recognition Of Orphan Blocks:

It is imperative to note that all the blocks are not included in blockchain, but the probability of happening so in the large mining pool decreases considerably.

Professionals claim that with ASIC machines that are being introduced recently might make the process easier than before. The only point of concern is power consumption as these systems need an enormous amount of electricity to operate. Government of several countries are providing subsidized electricity and because of this, the mining is not left behind in any aspect.

Is It Possible That the Centralization Could Have Unleashed More Power?

Yes, it is, but it has always been accompanied by controversies! It all started when Emin Gün Sirer presented a paper in which he claimed that Bitcoin is broken. To support his claim, he quoted that it enables selfish mining. For those who do not know what this is, it is an attack by a group of people for the mining pools to increase their profit! But there’s a catch, they are not playing fair! You cannot expect a fair outcome from something which involves too many unfair nodes!

Also, we cannot forget the fact that centralization will give too much power to one entity making it similar to other popular currencies all over the world!

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Is There Any Hope For Decentralization?

The experts have never seen the centralization as a boon, yet they cannot stop it from gaining popularity. However, there is still hope for decentralization and the reason behind is that with this, the miners cannot control the hash power but they can accumulate it! Also, it gives them power to switch pools! As a miner, you’ll have to take rational decisions and act accordingly to save yourself from heavy loss.

Are There Any Downsides Of Decentralization?

Every coin has two sides, and decentralization of mining pools is no exception. As an investor, the decentralization is not profitable as the earnings made from the same are not significant. Another fact, that you need to consider is that you’ll be a pool admin and that’s why for every technical setup and bid, you’ll be responsible! This is like playing solo against an entire team! You only have scarce probability of winning that too only after much hard work.

What To Conclude?

As cryptocurrencies are still fluctuating, we cannot say which practice will be more profitable. Mining of these has evolved and can see further improvements as well. We can always cherish what we have got or keep regretting the things that we have lost in the process of development. For now, we can see the advantages that come with the centralization of cryptocurrencies.

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What do you think? Do not forget to tell us your opinion on this.

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