As a proof-of-work (PoW) based blockchain, how does Ethereum combat mining pool centralization, which can lead to an entity controlling the majority of hashing power?
asked Jan 24, 2016 at 8:20
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1 Answer
There are two primary ways that the existing PoW based consensus algorithm combats mining centralisation.
The first is by reducing losses due to orphaned blocks, which independent miners are more likely to experience.
This portion of the Ethereum mining algorithm, a technique referred to as GHOST, includes the headers only of recently orphaned blocks in return for a reduced reward to both the block producer and the includer of the (otherwise orphaned) block. These included orphans from "grandparent" or earlier blocks are frequently referred to as "uncle" blocks because the gender neutral term "ommer" isn't widely known or understood.
The second way that the Ethereum PoW consensus algorithm combats mining centralisation is by its use of a Proof of Work function that is ASIC resistant. By preventing mining from becoming dominated by specially designed and produced hardware, independent miners are kept competitive or even given an advantage in terms of their profits and/or levels of hardware investment, because they can make use of readily available commodity hardware (i.e. consumer graphics cards).
answered Jan 24, 2016 at 9:00
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What about situations like we saw earlier in the life of Ethereum where large groups of people were pool mining because it was "easier" or "more familiar" to pool mine rather than solo mine? At the time, I believe there were 2 pools with at least 30% or more of the network hashing power each. Jan 26, 2016 at 5:42
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Well, that's one of the reasons I chose the phrasing "combats" instead of "solves". Human psychology as well as other centralising forces still exist! These two techniques merely help to reduce the incentive for them. Jan 26, 2016 at 8:07