Trend of centralization in Bitcoin's distributed network

• Published in: 2015 IEEE/ACIS 16th International Conference on Software Engineering, Artificial Intelligence, Networking and Parallel/Distributed Computing (SNPD) pp. 1 - 6
• Main Authors: Beikverdi, Alireza, JooSeok Song
• Format: Conference Proceeding
• Language: English
• Published: IEEE 01.06.2015
• Subjects: Bitcoin; Bitcoin pool; Centralization; Decentralized network; Mathematical model; Mining; Online banking; Peer-to-peer computing; Protocols; Security; Servers
• DOI: 10.1109/SNPD.2015.7176229

Bitcoin, a distributed, peer to peer crypto currency, has gained a significant popularity among different users around the world by promising users a fully decentralized network with an inherently independence from governments and without the influence of any central authorities and organizations. Mining is the fundamental concept in Bitcoin which must be done in checking all monetary transactions and verifying them which in return generates Bitcoin as a reward to encourage this work. While the qualitative nature of this unique system is clearly accepted and understood, there are some issues regarding to its decentralized network environment. Based on our analysis due to the high variance of solo mining, the number of users joining top most famous Bitcoin mining pools are increasing due to the fact that users together under a Bitcoin pool will have a higher chance of generating next block in the Bitcoin's blockchain by reducing the variance and earning the mining reward. Furthermore, emerging huge mining farms with strong mining resources and fast processing power is another trend toward centralization. Although some might argue that, the protocol itself is purely decentralized and these are marketbased centralization, this trend clearly illustrates that the pure, decentralized protocol of Bitcoin is going toward centralization in its distributed network, where any kind of centralization should be considered carefully due to the 51% attack. By analysing all the created blocks from 2009 to 2014 we proposed a centralization factor which shows how centralized is the state of Bitcoin's network in different years. Centralization, due its simplicity, is a phenomenon that happens to any disciplined and organized system automatically, which in case of Bitcoin is against the pure initial decentralized nature of it and might arise some concerns and threats to the Bitcoin's unforeseeable future.