PoW Centralization: What Size War Chest Is Required?

"The positive news is that the level of capital a pool operator needs to smooth out the impact of luck is not as large as some people might think, perhaps around $20 million to $40 million. Therefore while the issue is a problem, it may not be critical."

PoW Centralization: What Size War Chest Is Required?
  • "According to new findings from @mononautical, Bitcoin mining is dangerously centralised, with one entity controlling the coinbase outputs for around 47% of the network hashrate."
  • "Bitcoin analyst Alex Bergeron claims the reason for this centralisation is that miners want to eliminate all the variance in their revenue and that entities with large balance sheets therefore take this variance risk for them."
  • "In this piece we attempt to calculate how large these balance sheets need to be. We conclude that perhaps only around $20m of capital is required, which is a relatively small amount."
"A new mining pool startup, could raise $2m to fund technical development and another $20m for the initial capital for the smoothing reserve fund. Therefore total funding of $22m would be required. While this is not a trivial amount of money, given the size of the mining industry, perhaps it is much less than a typical crypto industry “war chest”."
  • "Therefore, although the problem is currently manifesting itself on the network to an extreme extent, this variance smoothing issue does not appear to be as much of a long term fundamental incentive problem as some may think...Perhaps another reason for this alarming degree of centralisation right now is that many in the mining industry simply don’t care enough," finds BitMEX Research.

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