In the conclusion he states: "<i>Even if a new team was built to replace Bitcoin Core, the problem of mining power being concentrated behind the Great Firewall would remain.</i>"
Bitcoin's decentralized nature encourages power pool formation by promoting economies of scale. It is not surprising that like the production of electronics, clothing, toys, etc. the lowest cost center is in China.
They have the trifecta of a majority of mining power, two of the largest exchanges, and several key developers on board. More importantly the miners supporting the project are in agreement on increasing the block size. It goes a long way to addressing most of the things Mike brings up in this post.
Mike's done a lot of Bitocin particularly by bringing to light the issues with Bitcoin core. At the same time this post strikes me as alarmist. It seems more like a rationalization of his decision than anything else.
https://www.reddit.com/user/anarchystar as a random example that comes to mind.
like, yay it fixes a technical issue, but I'm doubtful that a group that acts like children in forums has any long-term sustainability.
This is exactly why I went from being a great champion of Bitcoin in 2011 (came on board late 2010, right after Mike if I recall) to totally disengaging with the project today.
For the record, I deeply and vehemently disagreed with Mike about the direction of the project on numerous occasions (e.g., coin "redlists"), but I'd much, much rather spent my time around Mike (an all-around nice guy, by the way) than the idiots and know-nothings than presently have come to form the Bitcoin "community". Things were far, far different back in 2011-2012, before the first big price jumps led the current crown on board. Ironically, their "participation" in the project (mostly screaming, censoring, and belly-aching on Reddit) will only cause the thing their fear most: a Bitcoin bus-plunge and loss of most of their assets.
Mike, if you read this, I was only a minor player in Bitcoin core (< 5 commits) but I appreciated your work and particularly your talks about Bitcoin, as well as your work on Bitcoinj, an extremely well-led open source project. I look forward to seeing your next endeavors.
When we were preparing for XT, we also went and talked to the Chinese miners. They told us that the original 20mb limit Gavin proposed was too high, but that they could accept 8mb. So we compromised and went with 8 + a growth function. Then after XT was launched they changed their mind and said any growth after 8 at all was totally unacceptable. Now they're telling the Classic guys that 2 is the most they could handle. Did the Chinese internet border really get 4x worse in the span of 3 months? I doubt it.
Western miners aren't much better. One told me quite clearly they'd start voting for BIP101 back in November (though: voting in such a way that it wouldn't actually activate!). But they didn't. When I followed up, they again said it was on their todo list and they'd start really soon. But they didn't.
The miners have proven over and over again that what they say they will accept and what they actually do accept is not aligned. So right now I'm seeing some excitement (maybe more like desperate hope) that Bitcoin Classic will solve anything. Maybe now the "Scaling Bitcoin" conferences have come and gone and Core's reputation is much worse, they'll have better luck, but even then the best case scenario is that Bitcoin gets a 2mb limit. That isn't nearly enough and big backlogs will still occur.
More to the point, even in the best case scenario, the community will essentially accept that Bitcoin is controlled by the Chinese government and grows or shrinks at their whim.
On your point about the current dominance of China in mining. Two years ago people were flipping out that Ghash.io might have the ability to perform a 51% attack and now they barely register a whole number percentage share of the hashrate. Things change.
I supported BIP101, but your unwillingness to compromise - they offered 4mb doubling every 4 years I believe - played a great part in it's eventual failure.
The situation now is very much different with almost 100% of miners saying they will support 2mb and some 50% already supporting bitcoin classic with more to come.
So, I share your concerns, but unfortunately mistakes were made, some of them grave mistakes, mistakes from which we learned, and are thus now well placed to move forward.
The lowest cost center for mining bitcoin is absolutely not China. The reason mining power is currently centered in China is because producing the latest-generation ASICs is cheapest and quickest in China and for various reasons the companies involved prefer to just bring them online in China quickly.
Soon ASICs will stabilize on the most modern production processes and commoditize and Bitcoin mining will shift to where the marginal cost of mining is low -- Iceland or other cold countries with extraordinarily cheap energy.
The other major reason that Bitcoin mining is big in China is that it's far and away the biggest source of capital looking to escape government controls. You put in yuan at one end, turning it into ASICs and electricity, and you take bitcoin out at the other end. Say what you want about bitcoin, but it's a whole lot easier than your yuan deposits at the Industrial & Commercial Bank of China to get across the border.
Some day these things will change. But for now, Bitcoin is stuck with Chinese miners.
I moved my GPU mining farm in 2011 to Douglas County, Washington state where my electricity cost was 2 cents per kWh. China does not beat that. In fact to this day none of the large professional mining farms beat this cost. At best they match it: in 2013 the first professional miners—MegaBigPower—came into Douglas County... http://www.spokesman.com/stories/2014/apr/26/northwests-chea...
China has a quarter of the world's hydroelectric generating capacity, but its utilization rate is low, far lower than in places like the Unites States, Canada, or Norway. This is primarily because much of the potential hydropower cannot be absorbed by the grid in western China, where many dams have been built over the past decade on the rivers flowing off the Tibetan plateau. Bitcoin mining operations are the rare customers that can show up near an isolated, idle hydropower station and gobble up electricity from turbines that otherwise wouldn't even be spinning.
The other factor I mentioned, that bitcoin mining in China provides an added return in the form of expatriated revenue, does not enter into the calculation of marginal cost. But it does effectively add several percent—the price of moving money out of China via other mechanisms—to Chinese miners' marginal revenue. And it's marginal revenue minus marginal cost that matters, not marginal cost alone.
For example the lowest Chinese costs I remember reading were from a remote farm who benefits from hydro power and admits that paying 3 cents per kWh is already "on the cheap side": https://bitcointalk.org/index.php?topic=1072474.msg11472186#... Farms don't usually disclose how much they pay (strategically sensitive number), but I always do some back-of-the-napkin math when possible, eg. when they release approximate figures, and I usually calculate somewhere between 4 and 10 cents per kWh.
In other words, the lack of people mining at a loss makes mining profitable and hence subject to forces of centralization.
There are several reasons why mining as a lottery substitute is rare, a major one being that commodity hardware is inefficient by many orders of magnitude, making even a botnet next to useless.
Perhaps, if a proof of work, whose efficiency gap (with custom hardware) is at most an order of magnitude, were adopted (or slowly phased in), enough lottery players would arise to make mining unprofitable at scale.
Botnets should then just be welcomed as a modest increase in decentralization.
You can see here many alternative coins and an estimated market cap:
A lot of altcoins came up as mere clones of another, pump-and-dump schemes, or with irrelevant or plain bad changes; but there were quite a few valid innovations. Bitcoin has barely changed in it's core protocol. I hope other projects get more exposure in the future (or Bitcoin becomes less afraid of change).
"You can't possibly get a good technology going without an enormous number of failures. It's a universal rule. If you look at bicycles, there were thousands of weird models built and tried before they found the one that really worked. You could never design a bicycle theoretically. Even now, after we've been building them for 100 years, it's very difficult to understand just why a bicycle works – it's even difficult to formulate it as a mathematical problem. But just by trial and error, we found out how to do it, and the error was essential." -- Freeman Dyson
[0] http://www.coindesk.com/bitfury-details-100-million-georgia-...
1) Mining power is still decentralized. It's not evenly distributed, true, but it is decentralized.
2) Just because some significant percentage of it is in China, doesn't mean it's controlled by one single entity like you're trying to present it here. It's still distributed across thousands of independent miners.
> ...the block chain is controlled by Chinese miners, just two of whom control more than 50% of the hash power.
That's a pretty unique situation.
If a predominant amount of hash power were concentrated in China, but distributed among some large (100+ to 1000+) number of miners, that would be fine. But a system of any kind is no longer decentralized the moment more than 49% of that network is entirely controlled by a small [enough] group of people.
The US Financial System relies on more than just Bank of America, Chase, and JP Morgan btw. There's more decentralization in the status-quo than the three or four big-name BTC Miners.
https://blockchain.info/pools?show_adv=no
A pool is not a single entity, it's composed of hundreds, thousands of miners.
To do some evil thing they will have to convince all of their miners to participate, and stay quiet at the same time. And all for what? So they can perform a >50% attack, crash the value, and ruin their investment?
I would worry more about things like BitFury's ASIC datacenter, which is a true singular entity.
There's some neat tech that gets around this that is compatible with Bitcoin, for example p2pool. It's not super popular yet but it solves some of these problems.
(2) Take both pools offline.
(3) Profit.
Second, there are economies of scale to be exploited. Over time, it will become more profitable for the largest miners to increase capacity vs the smaller miners. The largest miners will get cheaper power contracts. That alone gives them an advantage that will allow them to take market share from the smaller miners.
The end result is fewer, but larger, miners doing more work.