SINCE its inception, the market for bitcoin has experienced one of the most remarkable roller coaster rides of all time. To kevin dowd bitcoin mining this question, we need to look at the fundamentals. A glaring problem then becomes apparent.
The problem is that these economies of scale are inconsistent with long-run competition. This implies that the bitcoin system is not sustainable and must therefore collapse. Indeed, these centralising tendencies are already playing out in the bitcoin mining industry. Mining pools are now so big that the original atomistic competition has given way to oligopoly, and there is concern that these mining pools are big enough to threaten the system by subverting the transactions validation process for their own ends: for example, by mounting some kind of double-spend attack. However, in recent months, one big pool, GHash. IO, has openly rejected that idealism and now poses a major threat to the system. The bitcoin system is thus already reduced to the point where it is relying on trust in the dominant mining pools not to abuse their power.
However, distributed trust is the core of bitcoin’s value proposition. In the meantime, there is nothing within the bitcoin system to credibly shore up confidence. The sticking plaster solutions that have worked up to now cannot work indefinitely. At the same time, unlike gold or tulips, bitcoins have no alternative use.