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Stratum v2 update is intended to protect against centralization

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Bitcoin is a decentralized network. It offers the ability to transfer money without relying on an external third party such as a bank. Due to the decentralized structure of Bitcoin, the network is almost impossible to compromise. Thus, it is well protected from censorship and reprimands from outside.

The miners help with this. They provide the network with computing power and thus ensure security. However, some fear seeing a trend toward centralization in the way bitcoin mining is being conducted. The thesis: The formation of mining pools creates central weaknesses in the system. An update should fix that.

The Power of Mining Pools

Bitcoin miners are in competition with each other. You have to find a random number. Whoever finds them first gets to create the new block and receives a reward in the form of BTC. Those who make more computing power available to the system increase their chances. The transactions are recorded in the blocks.

As an individual miner, the probability of “finding” a block is so low that it can sometimes take decades to successfully create a block, depending on how much computing power you have available. That is why the miners join together to form so-called mining pools. Similar to a lottery tip community, strengths are bundled here. If the pool finds a block, the reward is divided among all participants.

The graphic shows how the hash rate is distributed in the Bitcoin network. And with it, how high the probability is for each party to create a block. The problem: The operator of the pool decides whether a transaction is included in a block or not. This gives a few players relatively large powers of disposal in the Bitcoin network. The two largest pools already have over 50 percent of the hash rate. This circumstance also represents a potential point of attack for restrictions from outside. Because the mining pools are easier to address than a loose structure of thousands of solo miners.

Stratum v2: New update to protect against centralization

An update was developed to address this issue. Stratum v2 is not only intended to facilitate communication between miners. It also lays the power of decision about the transactions in the hands of the individual miners. To direct censorship of specific transactions, an outside party would then have to turn to the hundreds of miners that make up it, rather than the pool.

Important: Stratum v2 is not an update that directly affects the Bitcoin code. The nodes have no say in this case. The update regulates the relationship between the pools and the participants. The pools decide whether the protocol is adopted or not. With the update, they give up power in the network. However, this also reduces the pressure from outside. The pools are primarily interested in profits. These are not in danger with the update. It is currently still in the testing phase. In any case, an implementation would help the network to become more decentralized.

All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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