Concerns are being raised by industry experts that the upcoming Bitcoin halving could result in increased centralization. The fear is that the reduction in block rewards will make older mining equipment unprofitable, leading to a concentration of hashing power in the hands of fewer miners. While centralization in mining pools on the Bitcoin network has been observed over the past few years, the halving is expected to exacerbate the issue. Historical data shows that the top two mining pools have controlled around 30-40% of the hash rate during any given three-day period from 2016 to 2021. However, recent data indicates that hashing power is becoming even more centralized, with the top two mining pools controlling almost 50% of the network’s hashing power. This centralization poses two main challenges to Bitcoin’s decentralized nature. Firstly, centralized mining pools could have disproportionate influence over protocol updates or changes, potentially favoring their own interests. Secondly, centralized mining creates risks for Bitcoin, including the potential blacklisting of certain products. In November 2023, it was discovered that one mining pool was filtering transactions, raising concerns about censorship. While the halving may decrease mining profitability, there are potential avenues for pursuing increased returns, such as an increase in network fees. However, if the decrease in mining rewards is not absorbed by rising Bitcoin prices and transactions, finding solutions to mitigate centralization may prove difficult due to the reluctance of the Bitcoin community to protocol changes. Ultimately, miners will have to ride out the challenges posed by the halving.
Implications of Bitcoin Halving on Centralization of BTC Mining