In the second part of December, more over half of Bitcoin's blocks were mined by just two pools. To find out who is behind the massive mining operations and whether Bitcoin is indeed as centralized as it seems, we looked at Foundry and Antpool.
While the majority of the market concentrates on the price fluctuation of Bitcoin, a much bigger issue continues to go unnoticed.
Since the network's conversion to Proof-of-Stake, the centralization of Ethereum has been one of the hottest topics in the cryptocurrency industry. Many detractors have warned about the risks of such a huge market cap cryptocurrency depending on only a small number of centralized validators.
The centralization of the Bitcoin network has largely vanished from popular discourse in the wake of China's anticipated mining ban, instead focusing the attention of a small subset of the mining community.
However, the market as a whole is concerned about Bitcoin's centralization, particularly at this point when just two mining pools are responsible for the majority of its blocks.
The global hash rate distribution for Bitcoin, it discovered that Antpool and Foundry USA accounted for more than half of it.
In the last ten days, each of the two pools mined more than a quarter of all Bitcoin blocks. Foundry USA has mined 357 blocks since the middle of December, compared to Antpool's 325. Antpool contributed little less than 24.5% of the total block generation, while Foundry produced 26.98% of the network's blocks.
With about 14% of the blocks mined over the last three years, Antpool has been at the forefront of Bitcoin mining for years. However, Foundry is a brand that is relatively new to the mining industry. Although it only accounted for 3.2% of the blocks mined over the previous year, it swiftly advanced to rank among the top 10 pools by hash rate.
A closer examination of Antpool and Foundry USA reveals a startling degree of centralization as well as a web of connected businesses that almost control half of the network.
The DCG Mining Titan Foundry
Foundry USA just needed a little over two years to establish itself as a major player in the Bitcoin mining industry. The eponymous Foundry, a business Digital Currency Group (DCG) founded in 2019, owns and runs the mining pool.
Foundry was one of the biggest Bitcoin miners in North America at the end of the summer of 2020. The corporation provided equipment financing and procurement in addition to mining. Half of the Bitcoin mining equipment shipped to North America by the end of 2020 was made possible with Foundry's assistance.
Foundry's enormous success as a miner and equipment buyer is directly related to DCG's sway in the cryptocurrency sector.
The venture capital firm supports more than 160 cryptocurrency businesses in more than 30 nations, making it one of the largest and most active investors in the sector. The largest companies in the market are represented in DCG's portfolio, including Blockchain.com, Blockstream, Chainalysis, Circle, Coinbase, CoinDesk, Genesis, Grayscale, Kraken, Ledger, Lightning Network, Ripple, Silvergate, and many others.
Its wholly-owned subsidiary Foundry serves as a one-stop shop for all of these businesses' mining requirements. Some people hypothesized that DCG's companies were contractually required to conduct all of their mining through Foundry's pool in light of Foundry USA's hash rate's sharp increase. It's crucial to note, though, that neither DCG nor any of the businesses in its portfolio verified this.
It also helped that China banned mining last year.
Miners were forced to leave China's abundant and inexpensive hydropower, so they searched for new places that would at least match their profit margin and have friendlier regulations.
The United States offered miners a variety of places and electricity options, making it the ideal place to relocate. And it surely helped to have Foundry USA, a sizable mining pool, right on their doorstep.
Bitmain's Monopoly, Antpool
Antpool, one of the earliest active mining pools on the market, was established in 2014. Antpool frequently makes up over 25% of the world's hash rate and has hardly ever dropped out of the top ten mining pools.
Because Bitmain, the largest manufacturer of mining hardware in the world, owns and runs the pool, it has perfect vertical integration, which contributes to its success. The Antminer series' manufacturer has provided its pool with the newest and most effective Bitcoin hashers, enabling it to continue making money even during the harshest crypto winters.
Many have speculated that Bitmain was forcing its major customers to mine with Antpool due to the company's dominance over the global cryptocurrency market. Many people are concerned about China's influence over such a significant chunk of Bitcoin's hash rate because both Bitmain and Antpool have their headquarters there.
Corporation of Cryptocurrency Mining
It's crucial to understand how a mining pool and a private mining operation are different. A pool, as opposed to a single individual miner, indicates the combined hash rate of numerous machines owned by multiple entities.
Owners of mining equipment, or hashers, divide the revenue earned by the mining pool based on the amount of their investment.
The fact that Foundry USA generates 25% of the Bitcoin hash rate does not imply that DCG owns every piece of hardware involved.
However, Foundry gives its customers' mining operations a solid base and a roof. Due to the company's flaws, if it were to fail, a sizable chunk of the Bitcoin network might be disrupted, leaving thousands of smaller devices and miners to fight for themselves.
The same holds true for Antpool.
When considering the sector as a whole rather than just Bitcoin, the rate of centralization these two firms imposed becomes much more pronounced. Other cryptocurrencies including Litecoin (LTC), ZCash (ZEC), Bitcoin Cash (BCH), Ethereum Classic (ETC), and Dash (DASH) are also supported by Antpool's pools.
For the cryptocurrencies Ethereum (ETH), Solana (SOL), Polkadot (DOT), Avalanche (AVAX), and Cosmos, Foundry provides enterprise staking capability (ATOM). The amount of assets managed by the company is not made public.
