Two mining pools control 60% of the Monero network’s computing power. Will mining pool centralization lead to security issues?

Two mining pools currently control 60% of the Monero network’s hashrate, but how serious is the problem?

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Is Monero vulnerable to a 51% attack?

Monero, the privacy coin once led by Riccardo Spagni (Magical Crypto Friends guest Fluffy Pony), is currently showing a high level of hashrate control by certain mining pools. In the past, Monero developers have implemented hard forks on the network to prevent the proliferation of viable application-specific integrated circuit (ASIC) miners, but this has not stopped large mining pools from forming.

ASIC miners are much more efficient than traditional GPU miners because their microchips are designed specifically for a specific hashing algorithm. Consumer hardware is designed to be a general-purpose computing device that can do many things but is not specialized for any specific task.

As with all cryptocurrencies, the mining centralization problem Monero is currently facing is more subtle than it appears. Although two mining pools control the majority of the hashrate, individual miners in these two pools can switch to other pools at any time.

They could decide to reallocate their processing power by joining smaller mining pools, but they may have less incentive to do so.

Bitcoin has faced similar issues with over-centralization of mining pools, especially with the majority of hashrate concentrated in China, but in the past miners have taken action to keep the network decentralized by switching to smaller mining pools.

The two mining pools that currently control 60% of the network's hashrate could theoretically act as attackers and launch a 51% attack on the Monero network. Through a 51% attack, they would be able to manipulate the blockchain ledger, block certain transactions, and even have the power to initiate double spends. However, individual miners will certainly switch mining pools to protect their investments in mining machines and XMR tokens.

The centralization problem becomes more complicated

As mentioned above, Monero developers are aware of the industrialization of mining through ASIC miners, and they have tried several times to prevent the use of ASIC miners by switching hashing algorithms.

This leads to a more nuanced understanding of the problem of mining centralization. Simply put, hardware centralization is different from mining pool centralization. Mining centralization is when certain factions have hardware that is so much more efficient than GPU miners that normal operators simply cannot compete with them. This gives ASIC miner companies an unfair advantage over other miners in discovering new blocks and winning rewards.

Mining pool centralization refers to the fact that most miners join the leading mining pools in order to increase their returns. The larger the mining pool, the greater its corresponding hashrate, which means that they are more likely to discover new blocks. As a result, these few selected mining pools end up with the majority of the hashrate. It is worth noting that, in theory, ASIC miners can still mine in large mining pools.

With smaller pools, you get less rewards because smaller pools find fewer blocks due to their lower hashrate. If a large pool becomes a bad actor, miners may be incentivized to leave the large pool and mine in a smaller pool to protect the integrity of the network.

So while it is a valid concern, Monero’s mining centralization problem is multifaceted and may not be as severe as it seems.