Centralized Distributed Mining and the Doom of Bitcoins(and a possible solution)

[bbqminer]

Do we really need to have sites like deepbit or btc guild competing for a controlling share of bitcoins? The very decentralized nature of bitcoin is threatened.

Over time, different hands will be in a position to control the majority of bitcoin miners. In the long term one of these could become the bank, with the ability to generate and loan bitcoins out of thin air.  With deepbit nearing 50% of the total network, it is clear that centralized distributed mining is a threat to bitcoin. This is a problem that needs to be addressed or bitcoins are doomed.

I having nothing against Deepbit, they are offering what is currently a necessary service, in fact I think they are great. However, a decentralized distributed mining system is crucial to the long term survival of Bitcoin and the underlying principles ensuring they remain free of inflation, and free from a central authority. Without the massive non-centralized p2p network, bitcoins will share the same fate as the USD and Euro. Humans cannot be trusted to control bitcoins!

The solution is to create P2P hive distributed mining clusters that work together without the need of these central authorities.

This is my first post and I am thus unable to poste outside the newbie forums... feel free to copy paste this post at will.

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[ScottCFR]

As it stands bitcoins are decreasing a lot (Mt.Gox). DeepBit may have something to do with that. But, I'm not sure.

[dr_nix]

Well, for miners with limited mining capacity (most of them, including me) it is very useful to have pools. As designed, the system dispenses around 24 hours times 6 times per hour bitcoins: 144 times a day. Each time it 'gives' 50 BTC (total 7200 BTC/day).

But there are many more miners than 144. So, if everyone were to solo-mine, most would have to wait a long time before some payout occurs, and the variance would be extremely high: Many would never receive anything.

Now I assume that every miner would prefer to have a payout once a day (with a stochastic nature of the amount to be paid), instead of the other way around (where the moment is the unknown and the amount is fixed at 50BTC). This is where pools come in.

I think, currently with all these small-scale miners, and exchange rates wildly fluctuating, a useful distribution would be around ten mining pools of equal size. Then each pool would receive, on average, 14 payouts a day (and so could the miners).

In the long term there could be institutional miners that can live with the stochastic nature of their payouts, and with a stable exchange rate, they can solo-mine.

[bbqminer]

reply to doctor_nix:

Overtime, as the difficulty goes up and up, everyone except for a few mega operations will be small scale. Inevitably, just like you and me, they will require some form of distributed mining. As an open source product, you cannot stop innovation, and pools such as deepbit are innovative and are serving a vital function.

At the same time, they also pose an incredible risk to the future security of the currency. If any single entity can control 50% or more of bitcoin hash power, and as the value of bitcoins continues to grow, this will represent a severe risk, not only to the security of the currency but to those that use it. If we reach our goal in forming a respected world currency, a crash would be disastrous. If bitcoins are to grow, their future security needs to be certain (outside of the encryption algorithm aspect).

At the same time, no one would ever have the authority to declare that deepbit cannot exist, or even control 50% of the market share, hell maybe in the future people will vote for who controls their money with where they place their bitcoin power, and maybe this is how banking authorities will be selected.

What I am proposing is that we find a way to ensure that bitcoins, in their default form, are not reliant on a larger institution of any kind. In order for this to happen, there needs to be a way for groups of users to share resources to generate coins, without the reliance on a central authority. This needs to be done through overlaying peer-to-peer networks.