Blockchain Bites: Bitcoin Rebounds, Addresses Above 2017 Peak, Sci-Hub Decentralizes

Bitcoin’s price is bouncing back, having found a floor of around $30,000 to stand on. Meanwhile, the number of active bitcoin addresses and transaction volumes has climbed above peaks set in 2017.

Also, content moderation decisions from Amazon, Shopify and Twitter following the Capitol riots in Washington, D.C., on Jan. 6 have put efforts to “decentralize” the web into sharp relief.

Few, if any, crypto-based protocols or platforms have matured to that level, though there are encouraging signs. Yesterday, Sci-Hub moved to the “uncensorable” Handshake network, preserving its rich database of pirated academic research.

Activity peaks
There were over 1.3 million active bitcoin addresses in a single day last week, the most since the crypto bull run of 2017. Similarly, trading volumes are treading new ground – largely driven by retail interest, analysts say – above peaks set three years ago. Bitcoin OGs weighed in on “how far we’ve come” between the two bitcoin rallies.

Uncensorable web
Sci-Hub has launched on the uncensorable Handshake network. A database of pirated academic research, SciHub has long faced domain name revocations and attempts to wipe it from the web – but now Handshake’s alternative, distributed domain name architecture will help keep it alive. The fight to decentralize the internet’s basic protocols was thrown into relief by Twitter, Amazon and Facebook’s heightened and unprecedented content moderation decisions in the week following the Capitol riots.

Bitcoin APIs
Digital asset manager NYDIG is joining forces with banking technology provider Moven to offer plugins for banks that want to launch bitcoin products. The move comes in the wake of several letters from the U.S. Office of the Comptroller of the Currency giving banks the green light to custody crypto and the ability to conduct payments and other activities with stablecoins.

Retracing and beyond?
Bitcoin options traders are placing bids for a $52,000, $64,000, and $72,000 BTC strike price, indicating that despite a 20% dip to $30,305 on Monday, the bulls are still roaming. Bitcoin is around $34,000 at press time, well shy of weekend highs above $40,000.

Hashrate distribution
A frequent criticism of the Bitcoin ecosystem is the centralization of hash power contributed to secure the network. For years, the mining market has coalesced in China due to an abundance of cheap electricity, the proximately of mining machine giants and low production costs.

According to the Cambridge Bitcoin Electricity Consumption Index, China dominates the mining sector, accounting for nearly two-thirds of contributed hash power. The U.S. comes second with approximately 7% of the global hashrate, followed closely by Russia and Kazakhstan. It’s worth noting these metrics are based on a limited sample size.

Further, only 10 mining pools are responsible for 70% of bitcoin’s hash power, Casa CTO Jameson Lopp noted in a blog post this summer.

Detractors point to this concentration – at the national and corporate level – as a fault line for Bitcoin security. If malicious actors gained control of the network, they could perpetrate a 51% attack, which is a way to double-spend bitcoin or otherwise tamper with the blockchain’s record of transactions.

“In 2020, Bitcoin has […] become a highly centralized system that places an increasing amount of trust in a small number of large entities. Any centralization of Bitcoin network hash power should be of concern as it erodes the trustless model of the network,” TokenAnalyst, a cryptocurrency research firm, claimed last year.

While Lopp is seemingly in support of distributing power away from mining pools, he doesn’t see this concentration as a three-alarm fire. Hasu, a pseudonymous crypto researcher, also thinks concentration is harmless.

“[B]itcoin’s design doesn’t assume mining power is widely distributed. It’s simply not a requirement. Instead, it only assumes miners are rational, which is something completely different. Rationality means agents do what is best for them, even if that means colluding with other miners to attack the system,” he wrote in a CoinDesk op-ed.

Research has shown the costs of attacking a well-secured blockchain network would likely surpass the gains made. Further, in practice, a double-spend is not a death sentence. Ethereum Classic, a less-active fork of Ethereum, suffered three double-spend attacks in 2020 and is still chugging along in the new year, after a number of security updates.

Even if not a pressing threat, there is still a cause to decentralize bitcoin’s computing power. Nangeng “NG” Zhang, CEO of mining giant Canaan, noted there’s a growing trend chipping into China’s dominance.

“[B]itcoin miners have traditionally relied on the cheap electricity powered by hydroelectric plants in the Sichuan province as their source of renewable energy. But when you consider that hydropower is only available during the wet season in China, six months of the year, it’s no surprise that bitcoin miners have cast their eyes to more innovative and sustainable sources of energy across novel jurisdictions,” he wrote in a CoinDesk op-ed.

Several firms, including Layer1 and Northern Data, have set up shop in Texas, attempting to leverage the state’s abundant supply of cheap electricity and business-friendly environment. Layer1 even announced the audacious goal of usurping some 25% of the bitcoin hashrate in the coming years, though the company has had some notable blowbacks.

Now, Kentucky looks set to become the next center of U.S. crypto mining. A pair of lawmakers introduced legislation offering tax breaks to cryptocurrency miners.

As Zhang concludes: “In reimagining a mining ecosystem that is both sustainable and viable, we will do well to plan strategically for the long term and not only consider short-term wins – whether it’s in tech or profitability – focusing instead on the complete integration of commercial, sustainability and environmental goals.”