0
1
It is always stated that BitCoin is uncontrolled and it does not make sense to cheat and double-spend because you will need more computing power than everyone else combined. Isn't that changed with mining pools? I can see top biggest mining pools controlling 75% of computing power. If they are in agreement, can't they (by "they" I mean pool managers) cheat on almost every transaction? Aren't pools becoming kind of uncontrolled authority in BitCoin community, What is controlling them?
1
To an extent yes. It's bad that mining pools are so big and fairly concentrated. Work is being done to try to alleviate this.
A few points limit the threat though:
The amount of harm miners can do is limited. They can't outright steal money, or create more money out of thin air. The damage would be in the order of double spending (resolution: wait for more confirmations) or censoring transactions (which a miner doesn't really have an incentive to do unless paid a lot by someone else or forced by law).
Individual miners can switch (they have in the past) to other pools if the pool operator goes rogue.
Pool operators would be digging their own graves if they do evil things: the Bitcoin price would plummet, costing them a lot of money and lost investment.
As a final resolve, when things turn really ugly, Bitcoin could change the proof of work algorithm, making ALL mining equipment obsolete. Miners are basically hired by the Bitcoin network to do some work, if they perform poorly they can get fired.
So, although far from ideal, there still are incentives to keep miners honest and rules that limit their dishonesty.
1At some level of centralization I would say that censorship would be a big problem. If we get to a point that Bitcoin is sufficiently important that a merchant can't choose to not accept it, miners could start doing things like blocking transactions to competitors, political opponents, activists, ... removing the monetery independence that Bitcoin could bring. – Pieter Wuille – 2015-11-29T17:14:56.807
Thanks Jannes , great answer. Please could you comment on "Work is being done to try to alleviate this"?.
Absolutely, I agree with Pieter too. And with the need to try to get things more decentralized. Work being done is for example all kinds of ideas to optimize the block propagation time (which is an important cause for the slight benefit large pools have over small pools) and not blindly raising the block limit. www.scalingbitcoin.org – Jannes – 2015-11-30T09:35:46.170
1
Possible duplicate of Do mining pools centralize the Bitcoin network and make it less secure?
– davidhwang – 2015-11-29T06:00:47.743