This is a drum I've been beating repeatedly, and I'd love some takes on it here.
In short, my argument is that an expanding money supply, fees, and staking encourage centralization over time, leading to decreased security. For Bitcoin, this plays out as follows.
Bitcoin mining offers rewards (block subsidy + fees), which are distributed roughly proportionally to hashrate owners. Bitcoin mining is a big business, with daily revenues of tens of millions of dollars. This business is focused on ruthless cost efficiency, because the revenue side (Bitcoin’s price) is largely exogenous for Bitcoin miners. Miners’ costs consist of energy costs, ASIC (mining equipment) purchases/writedowns, capital costs, rent of the location, maintenance, etc.
Almost all these costs have economies of scale associated with them. A larger miner has a stronger negotiating position for ASICs, a stronger negotiating position for energy contracts, access to cheaper capital, can more efficiently maintain their ASICs, etc etc.
Combine mining rewards with economies of scale for mining, and what you get is centralization over time. The largest miners have the lowest cost-base, make the most profit, are able to reinvest more in ASICs, and increase their share of consensus over time.
I've written on this in articles before (see for example here), where I also provide supporting evidence from research. See for example research on that mining pools are far more centralized than people think (A Deep Dive into Bitcoin Mining Pools), on how excess fees are already being extracted (Miner Collusion and the Bitcoin Protocol), and how ~50 individual miners controlled ~50% when Bitcoin was at a higher price, and that this was decreasing over time (Blockchain Analysis of the Bitcoin Market). There is far more research like this, and no research that I know of to show the reverse. If you know of any, I'd love to hear.
The reason I'm posting this now is that we're currently literally seeing this play out in practice. We're seeing mining companies capitulating and being forced to sell to even bigger parties with deeper pockets. See for example Cleanspark acquiring a mining facility and rigs from Mawson (35 million euros), Northern Data acquiring Decentric Europe (365 million euro deal), Stronghold Digital Mining buying more rigs (partly together with Northern Data), large miners getting ever bigger, while small miners with less ability to raise capital lose out (or get screwed over by mining pools).
To me, this is one of the largest issues with Bitcoin. When hashpower is centralized, security is diminished. Bitcoin can not be a good store of value with decreasing security. For what it's worth, I think PoS has similar issues that are equally underappreciated (it also centralizes over time).
What do people here think about it? Do you see this as a problem? Do you think the assessment is wrong?
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