Bitcoin mining is getting more and more centralized day by day

In the last year, almost half of Bitcoin’s hash rate has been produced by only three mining pools: the sector is less and less democratized.

Following the May 11 halving, Bitcoin Mining (BTC) continues to expand, but the growing concentration of the industry could jeopardize the „democratization of the hash rate,“ according to a presentation discussion at this year’s Mining and Investment Summit.

Organized by Matrixport and sponsored by Bitmain, the 2020 Mining and Investment Summit took place virtually Tuesday morning, bringing together „leading companies in the cryptocurrency mining and financial services sectors with digital assets.

In a presentation entitled „Bringing Bitcoin Mining to a Broader Market,“ Thomas Heller of HASHR8 provided an update on the mining industry, also discussing the strong demand for ASIC products.

Heller pointed out that the market is currently experiencing a „contraction in ASIC supply,“ with a „large group of miners ready to buy. Continuing on, he explained that hardware suppliers Bitmain, MicroBT and Canaan are already taking orders for March-July 2021.

Commenting on the contraction in Bitcoin’s offering, Heller’s presentation indicated:

„North American public and private companies continue to accumulate Bitcoin, as well as expanding their mining operations. Leading to a contraction in BTC’s own offering.“

The rush to Bitcoin by institutions and companies has contributed to the increase in mining revenues, which in turn has caused an increase in demand for new and second-hand ASIC miners. Large miners are expanding their operations during the Bitcoin supply contraction, trying to bring as many hash rates as possible within their borders.

These trends could push the sector’s hash rate further away from democratization, while China continues to dominate. As Heller pointed out, two-thirds of Bitcoin’s hash rate is concentrated in Chinese mining farms.

China is seen as the country with one of the lowest break-even rates for miners in the world. In June, the cost to mine 1 BTC in China was between $5,000 and $6,000, with electricity at $0.04 per kilowatt per hour. Globally, the break-even rate for Bitcoin mining can reach as much as $8,500 in some jurisdictions.

Bitcoin mining is generally considered less accessible to individual miners due to the costs and resources involved. Over the years, pools have consolidated their dominance of the industry. These entities are groups of crypto currency miners that pool their computational resources. Although the distribution is less concentrated than in the past, 45.3% of the hash rate in the last 12 months is attributable to three pools.

Mining pool distribution in Bitcoin

The position and individual ownership of the hash rate are important considerations with regard to decentralization, commented Heller.

HASHR8 recently announced the launch of Compass, a platform that connects Bitcoin miners with verified hosting facilities. The goal of Compass is to democratize mining profitability and introduce more small miners to the industry.