A research released by Canada-based financial services company, Genuity Group shows that Bitcoin’s decentralization has increased by several measures. The firm indicates in the report released in February 2019 that BTC was less decentralized in its early years. This is according to the distribution of its hashrate.
The report notes that in the last few years, Bitcoin has become more decentralized following the “increased competition” particularly from the mining chip manufacturing firms. According to Canaccord, once said in 2014 that the mining pool GHash.IO was controlling 50% of the entire Bitcoin hashrate. This situation made the asset “vulnerable” to the deadly 51% attack where the controlling party can end up reversing and rewriting processed transactions among other risks.
At the moment, there is no single entity that has control over 20% of the largest crypto by market capitalization hashrate. There are five mining pools that control 10 to 20% while the rest of the groups take up 10% of the hashrate.
The increased decentralization according to Canaccord is a “foundational positive” in terms of development. The company says that the current state is due to several factors the most vital being the “commoditization of bitcoin mining chips, as advances in ASICs
[application-specific integrated circuits]
have slowed allowing for broader competition for bitcoin’s mining rewards.”
The firm uses Herfindahl-Hirschman Index (HHI) to measure Bitcoin’s centralization. The centralization has gone down gradually from ~3,000 in 2013 to ~1,200 currently. As long the HHI is below 1,500, the market is considered competitive while a measure between 1,500 – 2,500 is viewed as a “moderately concentrated” marketplace. On the other hand, a measure above 2,500 is seen as a “highly concentrated” marketplace.
Network image via Shutterstock; chart via Canaccord