Bitcoin miners will self-regulate – and that’s a good thing
Monday, June 16, 2014/
Bitcoin miners will self-regulate to ensure no single entity will control more than half of the computational power required to mine new digital coins, according to Sam Lee, co-founder and chief executive officer of the world’s first arbitrage investment fund, Bitcoins Reserve.
Recently, for the first time in the crypto currency’s history, the bitcoin mining pool GHash contributed more than 51% of bitcoin’s total cryptographic hashing output, on a number of occasions.
Bitcoin’s security relies on its network remaining decentralised.
Lee says it’s in nobody’s interest for that decentralisation to become compromised, as was the case during the periods GHash was contributing over 51%.
“I think bitcoin miners on a 1 to 10 scale of being ideological believers, are around 9,’’ he says.
“Why? They believe that the value of bitcoin will go up to ensure mining is profitable, and they are invested into it in the long term, helping out with securing the infrastructure.
“They are bigger believers than those who ‘buy’ bitcoins on exchanges, as unlike bitcoins purchased, mining machines aren’t liquid as you can’t just sell them whenever you changed your mind.
“Because of this, I believe that the miners will regulate themselves for the benefit of the ecosystem by ensuring a 51% pool doesn’t hang around for long.”
Bitcoin Foundation chief scientist Gavin Andresen pointed out in a blog that when one mining pool has more than 50% of hashing it is able to do two things.
The first is they could double-spend already confirmed transactions and the second is they could prevent transactions or new blocks from other people getting accepted, which would effectively stop all payments and shut down the network.
Andresen says both situations are unlikely in an “economically rational mining pool”.
Lee, who is based in Melbourne, will be speaking at the Inside Bitcoins Conference, which is being held in Melbourne on July 9 and 10.
He and his team developed the Crypto Currency Arbitrage Fund (CCAF) 11 months ago and in that period it has generated a 662.3% return on investment.
Lee says crypto currencies provide ideal conditions for arbitrageurs.
“Not surprisingly, CCAF is especially well suited to low risk-taking investors looking for a safe avenue to park their hard earned money and is the best investment vehicle for introducing people to crypto currency,’’ he says.
In other bitcoin news, Tuesday night at 5pm there will be crowdfunding launch event for a three-part bitcoin documentary web series at 1000 Pound Bend in Melbourne.
Bitcoin experts will be on hand to answer questions on anything and everything bitcoin related.