Bitcoin Mining History

Satoshi Nakamoto mined the first bitcoin in January 2009. Less than a year later, in December 2010, Slush Pool, the Bitcoin network's first publicly available mining pool, mined its first block. Since then, hundreds of Bitcoin mining pools have sprung up. Many of them have closed shop. Still, there are dozens of companies operating today, some of which own a sizable portion of the network's hash table.

Additionally, merged mining is important because it allows independent miners to reduce their payout variance. In other words, pooling allows miners to get paid less but more often than mining alone. Due in large part to the higher energy costs associated with higher difficulties, mining is becoming an increasingly expensive endeavor, which is critical to the overall health of the network as it allows more miners to participate in securing the network .

Mining Pool Ecosystem

There are essentially two participants in the merged mining ecosystem: hashers and miners. Use hashing power to try to find new blocks and connect to pools that distribute work and payouts to miners. There are many different types of hashers, ranging from individuals with one or two miners to large-scale mining farm operations consisting of tens or even hundreds of thousands of miners. Still, the infrastructure connecting miners and pools is the same, despite the size of the hash. Miners connect with the pool's servers through a proxy using a protocol or a specific set of communication rules in order to receive work from the pool.

The resource pool assigns specific jobs to specific miners, who in turn try to find new blocks of data, which consist of about 2,000 valid transactions. Once a miner thinks it has found a new block or is close to a new block, it submits that work (called a share) back to the pool through the protocol. In turn, the pool checks the miner's work and if it looks good, shares the block with the rest of the network for validation.

However, the Bitcoin network itself does not distinguish between federated miners and individual miners. That is, from the network's perspective, a pool's valid block submission actually looks the same as an individual miner's. This explains why mining pools have the majority of the hash rate distribution despite the fact that mining pools collectively consist of millions of miners.

Critics often point to this distribution (or lack thereof) of hashrate and point to a tendency towards centralization. While there is an opinion that the mining pool industry is still more competitive than the statistics suggest, centralization in the mining industry remains an issue.

Centralization issues in mining and mining pools

Generally speaking, in the mining ecosystem, centralization risk is divided into three main parts:

1. Geographic location of hash power

2. Hardware production;

3. Pool operation.

Concerns surrounding the geography of hash power involve national-level consolidation, mining farm operations, and public-private partnerships of questionable legitimacy. Likewise, hardware production risk is a multifaceted issue. Of course, the centralization of ASIC manufacturers like Bitmain brings many risks. However, this risk also extends to manufacturing at the component level. For example, fewer than a handful of companies in the world have operations that can support the production of 7nm chips, which are found in state-of-the-art ASICs.

While centralization related to geographic location and hardware production of hash power is a top concern for mining and the future of the Bitcoin network, centralization of pool operations is a salient issue today as it relates to the protocol itself.

Hash power ownership and hardware production centralization are influenced by forces external to Bitcoin core, such as geopolitics, broader materials market competition, and energy dynamics. However, addressing centralization at the pool level is a low hanging fruit, so to speak, since the operation of pools is directly influenced by the Bitcoin codebase and the protocol extensions built upon it.

Summarize

The above internal flavor describes the history of Bitcoin mining and its role in securing the network. Also, the roles and functions of the key ecosystem players and associated infrastructure are described. This helps to understand the context around centralization in the mining industry, especially in mining pools.