Yes, “miners can form a cartel and choose to systematically exclude certain persons from this financial system.”

As Bitcoin creeps into the real economy, a little backwards induction shows why one would expect such security assurances to fail

Achim Warner
6 min readJul 1, 2021

Competition between miners is central to Bitcoin. For now.

For some party to directly enforce their will on the network, they would need to acquire at least 51% of the hashrate. Right now, such a feat is nearly impossible. Obtaining this 51% level of hashrate is so difficult to do, that most Bitcoiners insist that the United States couldn’t even do this. The reason it would be nearly impossible for the US to do this on short notice is that the large part of the hashrate is produced by machines such as the Antminer S19, which produce 110 TH/s. By comparison, the laptop I’m using right now could produce about 10 MH/s. So about 10 million laptops would compete with a single Antminer S19. But the total hashrate is on the order of 100 million TH/s, or about 10 billion laptops. This issue is not so much about electricity, it’s dedicated hardware like Antminers called ASICS.

This provides security from most attack vectors. If it was simply a matter of mass-pooling available computer resources, someone with enough TikTok clout could organize a populist takeover of Bitcoin by regular people with laptops and desktops, simply for the lulz. On the contrary, In order to compete, you have to spend thousands of dollars on very specific fancy equipment that was created very recently. If you haven’t done this already, good luck.

This is a security feature, not a bug, at least so far. Because relatively few people have access to these machines, only these people could use these ASICs to attack the network. Further, because the people who own these machines have invested tens or hundreds of thousands of dollars in them, they would not attack the system. Attacking the system would show the system is vulnerable, causing a lack of confidence, plummeting price, and loss of return on the hardware investment. You don’t want to shoot yourself inf the foot.

As of now, no single mining pool has 51% of the hashrate. In the past, some pools have come close. However, frequently it is the case that a group of several pools does make up over 51% of the hashrate. Now, why don’t they collude? The answer that you will usually get: By doing so, they would be attacking the core ethos of Bitcoin, the foundation that makes further Bitcoin growth viable. Attacking this would be shooting themselves in the foot. Mining, in general, is quite profitable, so why kill your cash cow?

This logic holds perfectly well over the last few years, and will probably hold into the near future. As long as most people and regulators are still unsure of Bitcoin, and don’t have exposure to Bitcoin, the ecosystem has something to prove. This means the ecosystem will remain on its best behavior.

However, if Bitcoin continues to make its way into the real economy, two developments on the horizon are going to change the dynamics.

First, because the mining reward is cut in half every four years, mining may become less profitable. This might be compensated by a price rise, of course. If Bitcoin does stabilize in price, making mining a more predictable business venture, more competition will enter the arena, further driving profit margins lower.

Second, Bitcoin may cross a critical economic threshold, where it becomes “too big to fail.” This would mean that large portions of economies rely on Bitcoin and would suffer if the price crashed or the network stopped processing transactions.

At the moment, Bitcoin is held together by its ethos, by the promise of good things in the future, by a general belief that it will work as promised and faith that the game theory will hold it together, as it has been held together over the last decade. Today, for the most part, most of the economic activity in Bitcoin involves other Bitcoin-related things, like speculating on Bitcoin. Very few people take their salary in Bitcoin or use it for day-to-day activities, so Bitcoin needs cheerleading and promises to encourage investment to keep from crashing. As long as people can continue to make statements to the effect of “Bitcoin is the future of money, secured by game theory and thermodynamics”, Bitcoin will stay afloat. However, the long game for Bitcoin is to move beyond promises and proverbs and hand Bitcoin off the real economy. That’s where the $1 million Bitcoin lies.

This transition would cause a sea change in the game theory underpinning the network. Few understand this. Once Bitcoin is successfully handed off to the real economy, and established as an institution too big to fail, there is danger of collusion.

The top several mining pools could call a meeting. Nothing is stopping them from doing this now, except for the realization that faith in Bitcoin would suffer. But once failure isn’t an option, they are free to do this.

How would this play out? The top few mining pools have a meeting. They comprise, say, 60% of the hashrate. The Council Of Mining Pools make the following declaration

  1. Proof of Work is wasteful, we have come to realize. We (COMP) are only engaging in renewable mining.
  2. In order to enforce this, we insist that only COMP blocks are to be mined. If you attempt to mine on your own, we will orphan your block, you will waste your time and energy.
  3. By removing wasteful miners, COMP will be free to reduce the hashrate, and should be commended for their consideration of the environment.
  4. Indeed, there is no need for such a high hashrate, because COMP already makes sure the payment network is secure.
  5. COMP reserves the right to refuse to process certain transactions including any transaction to or from certain addresses.
  6. COMP also reserves the right to charge certain entities variable transaction fees, as they so choose.
  7. Any individual miner is free to join a COMP pool, by complying with our certification and verification procedures.

Bitcoiners will scream — they can’t do this!

But why not? Let’s use backward induction. What happens if they do? How do all the economic interests responds?

If you have several Antminers in your basement, you have spent a few thousand dollars on these, you have two options. You could join an anti-COMP pool and risk losing all your efforts, or you join a COMP pool. Now nobody will be bothering to censor COMP blocks, so being a COMP miner is guaranteed returns. This becomes a prisoner’s dilemma situation. You join the COMP pools or risk watching it all go to waste.

Meanwhile, wouldn’t the Bitcoin network crash because it was just proven to be something other than everyone was saying it was?


People are using it and rely on it, and, frankly, don’t care if a few annoying ransomware attackers are going to get their payments cut off. You can’t just say “this was fun” and pack it up and go back to your day job.

People simply use Bitcoin and no longer rely on faith to bootstrap adoption anymore. It is what it is, for better or worse. I get and spend Bitcoin, and I’m not a terrorist, so why should I care if some transactions don’t make the chain? I’m happy because the environment is not being harmed. I’m also happy because I don’t like to see half of my property taxes going into the school district’s cybersecurity budget.

What would cause the miners to collude?

These reasons aren’t hard to cook up. Here’s a few.

  1. Increase and stabilize profit margins, lower costs.
  2. Seek rent through transaction fees, gatekeeping.
  3. Appease governments, enjoy symbiotic relationship with governments.
  4. Good feels because saving the planet from global warming and ransomware.

So at this point, there may be a slow transition away from the network. Miners may slowly lose their rent. However other blockchains might be seeing similar consolidations, and Bitcoin is still the one everybody uses. So those that transition away are doing so at their own peril. But transition to what?