Bitcoin Facing The Risk Of Centralization: Analysis By The CEO Of Braiins

Cointribune spoke with the CEO of the Braiins pool, Jan Čapek, to shed light on the centralization risk that has resurfaced in recent months.

Foreword

Centralizing pressures on the Bitcoin network are many. The most significant come from the pools and the manufacturing of ASICs.

Jan Čapek, co-founder of Braiins, the very first Bitcoin pool, answered our questions about the centralization risks of the Bitcoin network that have been in the news a lot lately.

There are many ways to stack sats 🤝 pic.twitter.com/bRW1mPGomn

— Braiins (@BraiinsMining) August 2, 2024

Hello Jan Čapek. The most centralized aspect of the Bitcoin network is the manufacturing of ASICs. What can you tell us about it?

Hardware centralization could be a concern: One manufacturer holds the vast majority of the
market, which is concerning because it could introduce involuntary bugs, government pressure,
or low incentives to improve ASIC quality.

Many companies are trying to expand their business into hardware, including Braiins. I think in a
few years, there will be more ASIC manufacturers, but the ultimate challenge of hardware
decentralization lies in chip manufacturing. Currently, TSMC is the global leader in this market,
and developing new industries in this field is extremely slow.

[Note for novice readers: An ASIC literally stands for “Application-Specific Integrated Circuit.” It is an integrated circuit designed to perform a specific application (hashing data via the SHA-256 algorithm in the case of “bitcoin mining”).]

Foundries are indeed a small club. Samsung can also produce in 3 nm, and that’s about it. Could we be more optimistic about ASIC design? Will your company Braiins ever design one?

The chip supply, similar to that of bitcoin or gold, is extremely inelastic and doesn’t quickly adapt
to market demands. With a limited supply available, only larger players with significant financial
resources can participate.

At Braiins, we’re working on developing our own hardware, but it’s a long-term endeavor. This
year, we began with mini miners to start learning and improving our skills. Creating a complete
ASIC or chip will take considerable time, but we believe that “slow and steady wins the race”!

Pools are the second biggest factor of centralization. Could you explain what a pool is and why they might pose a threat?

Pools were born because solo bitcoin miners faced high costs and unpredictable rewards. To
combat this, they pooled resources, sharing rewards and risks, creating a more stable operation
where individual benefits were amplified through collective effort.

They could pose a threat to bitcoin if a significant percentage of the hashrate converges on one
pool, enabling malicious owners to launch attacks (selfish mining, reorgs, censorship).
According to game theory, miners should move away from the largest pool, as they have an
economical interest in maintaining a balanced and secure network.

A newcomer in the small pool club (Ocean Pool) is making headlines. One of its founders stated that Bitmain “probably selects more than 50% of transactions and manufactures 90% of ASICs.” Do you care to comment ?

While we may not know how he arrived at these numbers, we can conduct statistical analysis on
the block templates sent by mining pools to miners, which allows us to make reasonable
estimates. We think that Bitmain probably accounts for a slightly lower percentage of block
templates.

As for mining hardware, we’re not sure if 90% of it comes from Bitmain. However, as free market
believers, we see companies such as Canaan, MicroBT, Iceriver, etc., growing, and competition
is starting now. Bitmain is a colossus in the Bitcoin world, but with new companies and
investments, we are optimistic about future hardware decentralization.

What is Stratum V2 and is it the solution against the centralization of transaction selection by pools?

Stratum V2 is a communication protocol and is an advancement over BetterHash and Stratum
V1, primarily due to its efficiency, security, and miner autonomy. It reduces bandwidth usage,
speeding up mining communications, and introduces stronger security to prevent
man-in-the-middle attacks.

With SV2 miners can also create their own block template, this is great for bitcoin
decentralization. If a mining pool doesn’t have control over the template a lot of attacks and
censoring problems are avoided.

What distinguishes Braiins from other pools?

I think that the main difference is that Braiins it’s not just a pool. We’re creating an ecosystem
around miners helping them in every aspect of their work from the firmware and batch
installation to pool, proxy, support, etc.

We are trying to create an entire space that could help miners, making them more profitable and
efficient. We started as the first ever mining pool, and we want to drive the evolution of the
protocol, staying up to date with the bitcoin world, providing updates such as lightning payouts
and Stratum V2.

Braiins was the last major pool to use the FPPS payment system to distribute rewards to miners. However, this system being criticized. It may seem naive, but wouldn’t pools be better off agreeing not to use it?

The FPPS (Full Pay Per Share) payout system pays miners for each share contributed,
including both the block reward and transaction fees, ensuring stable and consistent income.
Sometimes people criticize this payout system because they think it’s bad for bitcoin
decentralization. We honestly think this is not true, every payout system is a trade-off between
risks, rewards, and security for both miners and pool. There isn’t a perfect one, just different
trade-offs.

We believe the most likely future for Bitcoin mining is that all pools will adopt FPPS, and there
will be global hashrate markets where investors, miners, Bitcoiners, and individuals can buy and
sell hashrate from pools. If this becomes reality with SV2 implementation, we will have a more
optimized and decentralized mining system.

In a complex ecosystem like bitcoin, gentlemen’s agreements are unlikely to work. Mining is a
war; every miner is a soldier, and every mining farm fights to win the race to a new block. The
only respected principle is the consensus of the protocol and bitcoin’s game theory.

Thank you for your time and precise answers, Mr. Čapek.