Cardano has a huge number of pools that are managed by independent entities. Some operators operate multiple pools. Only 2 operators have an approximate 10% share in the production of blocks. The third and other operators have less than a 4% share. There is currently debate in the Bitcoin community that 2 pools together have more than 51% share of block production. Namely Foundry USA and Antpool. According to some, this is reportedly not a threat to decentralization, as miners can supposedly delegate the hash rate elsewhere at any time. It's very dangerous not to see the tendency towards centralization as a problem, and to comfort ourselves with the argument that pool operators can't do anything without miners anyway. Delegation of power works very similarly in the Bitcoin and Cardano networks. The only difference is basically in the resource that is delegated. Stakers can also delegate to another Cardano pool at any time. Still, we should consistently make sure that the number of pools increases. We must not make the same mistake the Bitcoin community is now making. Let's explain the meaning of pools and reiterate the basic principles of decentralization. TLDR We know from game theory that security increases with the number of participants in a network consensus. Big miners delegate to the largest pools instead of supporting other smaller ones. Foundry USA pool is owned by the Digital Currency Group. Decentralization is like democracy. People must take care of it or they lose it. The more participation in the consensus is economically affordable, the more likely it is to maintain a high level of decentralization. Distribution of consensual power The decentralization of blockchain networks is about maximizing the distribution of consensus power among participants. Network security is built on network consensus, which can be participated in by both honest and dishonest actors. A network can only be considered secure based on the assumption that most participants in the network consensus behave honestly. We must assume that any participant can start behaving fraudulently if given the opportunity. We know from game theory that an important factor for honest behavior is the fact that individual participants do not know each other and cannot guess the behavior of others. All participants want to maximize their profit and adapt their strategy accordingly. Obviously, the larger the number of actors, the worse it will be to make some unfair deal. The centralization of power can result in its abuse at any time. If only two participants in a network consensus gain a majority share of power, the risk that they will collude and commit fraud will be high. In the case of decentralized networks, it is not acceptable to assume that they will not do so, as there is theoretically no other mechanism to prevent them from doing so. Preventing collusion, i.e. continuously increasing decentralization, is the only way to keep networks well-secured. Both Cardano and Bitcoin divide the main participants in a network consensus into pool operators and delegators (stakers, miners). Pool operators have the ultimate power in the network, as they can decide whether to produce a block, what transactions to put in the block, whether to ignore the last block, attempt to reorganize the blockchain, or which block to build on in the event of a fork. Pool operators in the Bitcoin network prefer their own block in the event of a fork for economic reasons. Having a high power share is an advantage, as you have a better chance of your block winning in the event of a fork. This economically destroys the competition. The delegators decide what share each pool will have. If pool operators behave dishonestly, delegators can delegate a resource (coins, hash rate) to another pool at any time. It can be said that pool operators are elected by delegators and their share can be reduced at any time. It's good to know that delegators will never produce a block. They only delegate power. It is naive to assume that delegated power is not actually power. A delegated power can be abused. Why is it a problem that only two pools hold a majority in the Bitcoin network? If we assume that pool operators will not do anything wrong just because delegators can potentially punish them, network security will be based on the assumption that miners are well aware of pool behavior and ready to act immediately. However, we have no evidence of this. No one knows how quickly a large mining hall can be switched to another pool and whether their owners have the processes in place to do so. It only takes a few blocks to commit a double-spend attack or reorganize the blockchain. The reaction time of the miners would have to be very fast. They would have to immediately understand that an attack has occurred and act accordingly. Unfortunately, we have no historical experience or knowledge of how miners are prepared for this eventuality. I dare say that hobby miners don't follow the 24/7 happenings in the Bitcoin network. Additionally, ASIC hardware owners may be at work or sleep at the time of the attack without the ability to make a change in the delegation. Even in large halls, there may not be staff at the time of an attack. It is easy to plan an attack for a time when hash rate holders can be assumed not to be paying attention. A network's reputation can be damaged literally within an hour. I'm certainly not sure the miners have the work of the pool operators under constant scrutiny. It is good to note that miners can only delegate the hash rate elsewhere when the attack is running. This may be too late. As we described above, having dominance is an advantage even in the case of forks. Should one pool have an economic advantage over its competitors? Absolutely not, since miners are economically motivated to switch to the pool where they get the most rewards. The biggest concern for Bitcoin fans should be the fact that a dominant pool is emerging, as this increases the importance of its owner. This goes against the whole principle of decentralization. The owner of a significant pool can be friends with significant miners and make deals with them. So they can ultimately work together on the attack. This potential problem is only solved by a high distribution of power. Have you ever wondered why the big miners delegate the hash rate to the largest pool and why they don't support other smaller pools to increase decentralization? Why don't miners who control tens of thousands of ASICs actually create their own pool? After all, it is economically advantageous to create their own pool, as they would not have to pay a fee to the pool owner. If each mining owner created their own pool, decentralization would be much higher. Why isn't this happening and why do most miners delegate to Foundry USA or Antpool? This seems to me to be evidence that mining is highly centralized and controlled by a few actors. Without wanting to get into any conspiracy theories, I assume that pools own part of the hash rate or that there are non-public agreements between pool operators and miners. Publicly available information confirms that certain influential groups are building power in the Bitcoin ecosystem. Foundry USA is owned by the Digital Currency Group (DCG). Recently, for example, it has acquired two mining facilities from Compute North with 6 and 11 MW capacity, including ASIC hardware. If you do some googling, you'll find information on other partnerships between big miners and Foundry USA. Should miners partner with a pool operator? DCG is a major cryptocurrency company that has direct ties to the 640,000 BTC-backed Grayscale Bitcoin Trust, among others, or strong ties with major players in the crypto-industry such as Blockchain#com, Blockstream, Chainalysis, Circle, Coinbase, CoinDesk, Genesis, Kraken, Ledger, etc. Antpool is owned by Bitmain, the largest manufacturer of ASIC miners. Thus, it can be assumed that a significant part of the hash rate is owned by Bitmain. Why do miners who should care most about decentralization voluntarily delegate to Foundry USA or Antpool pools? Theory and reality Decentralizing public blockchain networks is a very complex task. On-chain analysis may conclude that decentralization is good if each of the last 10 blocks produces a different pool. What on-chain analysis does not reveal are the agreements between individual players or the fact that one player can set up 10 pools with different names. Decentralization is like democracy. People must take care of it or they lose it. The tendency to centralize the consensus will always be present. People must be able to detect it and fight it. It is a great failure of the Bitcoin community that it has been lukewarm to centralize mining for years. Problems were overlooked instead of being highlighted. It will now be very difficult to do anything about it, as hobby miners will find it hard to compete with the huge mining halls. Whatever the reason, large miners delegate the hash rate to the largest pools without regard to the centralization of power. The community doesn't mind, they don't understand the topic, or they believe the influencers from the community that everything is fine and that pools don't really have any power. It's fair to say that if a wealthy individual decides to create a pool and make deals with the big miners, it's hard to prevent it. On the other hand, this suggests that the flaws are at the protocol level, as those who care about decentralization have no mechanisms in hand to do anything about the situation. The Cardano community should learn from the events surrounding Bitcoin pools and continue to care about decentralization. It is imperative that major multi-pool operators do not emerge, as their power could eventually cross an acceptable threshold. If such a thing were to occur, it would mean that ADA coin holders have some reason to delegate them to pools operated by a single entity. There could be some collusion behind it, or the operator may own the coins. Again, it's worth remembering that it's not a good idea to stake ADA on centralized exchanges. The largest multi-pool operator is the Binance exchange. It delegates coins of users to its pools. If the importance of the Cardano network grows, Binance will benefit. Anyone who cares about decentralization should stake ADA from their own wallet. It is very important for decentralization that as many people as possible can participate. Input costs must be minimal and technically it must be easy. Staking on Cardano is like that. You literally just need a few ADA coins and you can delegate power to any pool. Delegating is a very easy process that takes no more than 5 minutes. It's important to note that the source of the Bitcoin network's problems is mainly miners delegating hash rates to large pools. Mining is only for the rich and those with an entrepreneurial spirit. Cardano has the advantage that the source for delegating power is ADA coins. The number of ADA coins is capped at 45,000,000,000. Your share of power, once gained, will never be taken away. At any time a whale can come in and start buying ADA coins in order to gain a strong position in the network. However, it is good that in the bootstrap era, the distribution of power is high and growing. I dare say that hobby mining will be completely unprofitable in the next decade. Hobby staking will remain available to everyone in the world regardless of the value of ADA coins. Remember those pool operators have the most responsibility for block production and that it is the most important function in the Cardano network. Stakers can supervise pool operators and delegate to another pool at any time. Pool operators thus have a strong economic incentive to behave honestly. The more pool operators there are, the less chance there will be of them agreeing among themselves to behave dishonestly. The more blockchain networks grow in importance, the more pressure there will be to gain power. Bitcoin is currently the most important network, so powerful entities are fighting for power. The community should know what is happening and defend decentralization, not pretend that nothing is happening. Cardano has a chance to maintain a high level of decentralization if the community takes care of it. In that case, whales will be socially forced to delegate their stake to multiple pools operated by different entities. Of course, not everyone will behave this way. Conclusion It is true that miners can delegate to another pool at any time. A good question is why they don't do this when it would help Bitcoin decentralization significantly. At least optically in terms of the number of pools. The concentration of mining would remain the same. Decentralization is also largely the responsibility of the community. The team can set the economic incentives, but it cannot know in advance who will be interested in keeping the network running. The community must have the strongest voice in a decentralized network, and if something is not right, there must be a way to change it. If there is no way to change it, the community and therefore decentralization loses. If the power in the Cardano network becomes concentrated in the hands of a few, it will be necessary to react and try to find a solution. We can create a multi-resource consensus, or use decentralized identities. I can imagine that the decentralization of the Cardano network will not be based only on ADA coins. In general, it is very dangerous to claim over and over again that a given blockchain is the most decentralized and be afraid to point out problems. Early response is very important because once someone has captured a large share of power, change will be very difficult.
