During bitcoin's early days, anyone could "mine" it using their home computer. But as the price of digital currency climbed towards $100 in 2013 (it's now over $4,000), professional mining groups with specialized computer chips emerged. Today, these groups, or poolsnearly all based in Chinahave become concentrated and now dominate the production of new bitcoins.
This phenomenon is not new, but an article in Quartz this week shows how pervasive it is. The article looks at a company called Bitmain, which became a powerhouse by developing ASIC chips used just for bitcoin mining:
Bitmain may now be the most influential company in the bitcoin economy by virtue of the sheer amount of processing power, or hash rate, that it controls. Its mining pools, Antpool and BTC.com, account for 28.9% of all the processing power on the global bitcoin network.
The piece, which describes Bitmain's plans to move into artificial intelligence, profiles the company's co-founder Jihan Wu, a controversial figure in the bitcoin worldin part over allegations he manipulates the crypto-currency for his own ends. This includes the recent schism that saw bitcoin's blockchain (the record of all transactions) split in two, creating a new currency called "Bitcoin Cash."
Critics of Bitmain suspect that Wu was behind the recent, somewhat related split of bitcoin called the bitcoin-cash hard fork. That split was supported by a miner in Shenzhen named ViaBTCwhich happened to be a company that Bitmain has invested in.
If the allegation is true (for the record, Wu denies them), it suggests bitcoin is vulnerable to market manipulation not just by traders who hold large stores of bitcoin, but also by miners like Bitmain.
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One of those who holds this view is the CSO of the cyrptocurrency consulting firm Blockstream, Samson Mow, who recently wrote an editorial for Fortune questioning the viability of Bitcoin Cash. He believes Wu is engaging in shenanigans to secretly undermine the integrity of bitcoin.
"Jihan does have a lot of control for now, and much of that is simply due to mining centralization. As Bitmain is so vertically integrated, from selling ASICs, to operating mining farms, to running mining pools, he can prevent network upgrade and attempt to hijack the Bitcoin brand with things like [Bitcoin cash]," Mow said by email.
Such concerns over mining monopolies, and their ability to promote "forks" in the core bitcoin software, are typically regarded as philosophical feuds within the bitcoin community. But the real world market implications may also give pause for ordinary bitcoin buyersmany of whom are likely unaware of the emergence of mining cabals that are able to sway the future of bitcoin.
Mow, though, believes that whatever influence Jihan and other large miners may exert is only short-term and that the decision by bitcoin users to implement projects like SegWit (a plan to improve the efficiency of bitcoin's blockchain) show bitcoin remains fundamentally democratic.
This is part of Fortunes new initiative, The Ledger, a trusted news source at the intersection of tech and finance. For more on The Ledger, click here.
An earlier version of this article incorrectly described Mow as the CTO of Blockstream. He is the CSO.
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