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Ethereum Has a Miner Consolidation Problem

Last Updated March 4, 2021 4:47 PM
Justin OConnell
Last Updated March 4, 2021 4:47 PM

Ethereum, a public blockchain platform which boasts its smart contract technology, represents a decentralized virtual machine executing peer-to-peer contracts with its native digital cryptocurrency Ether (ETH). But, just how decentralized with it?

A quick analysis of the network demonstrates that the phenomenon which has terrified bitcoiners for so long has taken hold on the Ethereum network. 


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Bitcoin is not the only blockchain encumbered by mining centralization. The Ethereum miners have consolidated in a more dramatic fashion.

While many cryptocurrencies used Scrypt, Vitalik Buterin believed Scrypt was not memory hard enough to use for the alt. currency network. So, Ethereum launched Dagger, “a prototype proof of work that is even more memory-hard than Scrypt, as well as prototype proof-of-state algorithms such as Slasher that get around the issue of mining entirely.”

In 2014, Buterin outlined  the plan to ensure Ethereum mining was the most secure option:  “We intend to host a contest, similar to the contests that determined the standards for AES and SHA3, where we invite research groups from universities around the world to devise the best possible commodity-hardware-friendly possible mining algorithm.” Regardless of any efforts to ensure Ethereum remains decentralized, it appears the network is very centralized; much more so, even, than the Bitcoin network, which has been worried about miner consolidation in China. 

The largest Ethereum miner, DwarfPool, allegedly took to Reddit  to assuage concerns that they controlled the Ethereum network, since 47.9% of the network’s hashrate is distributed there.

The poster did not see a problem with the situation: “Technically it’s not a problem because DwarfPool has 4 powerful nodes and it’s easy to setup additional (no needs because servers not loaded even with 40% of hashrate). For external network it looks like 4 decentralized nodes. And 99% miners use proxy with auto fail-over function.”

The alt. currency network has very monied and powerful partners in the form of R3 CEV, IBM, Microsoft and many others. Many seem confident in Ethereum’s current development and road map.

Bitcoin has endured similar miner centralization issues. In the summer of 2014, Ghash.io, a Bitcoin miner, held 51% of the mining power before its percentage tumbled amid price volatility.

Initially proposed by Vitalik Buterin in late 2013, Ethereum’s genesis block was released on July 30, 2015.

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As you can see from the chart above, Bitcoin has experienced a bit of miner centralization, especially from interests in China thanks in part due to less expensive energy and hardware, but nothing like what Ethereum has experienced in its less than one year. What this means for the longterm viability of the Ethereum project is not known, and future versions could dissuade such centralization from undermining the Ethereum network in the longterm.