In order to remain decentralized, cryptocurrencies using a proof of work system must not allow a single party to control the majority of total hashing power.
But as the global pool of hashing power grows more liquid, cryptocurrencies need to pass another important test. They must be able to resist an attack from the total rentable global hashing power for their specific algorithm. Otherwise, arbitrageurs may find it financially attractive to rent hashing power in order to perform 51% attacks.
There are a few things preventing this from happening:Algorithm-specific miners — Many rigs are optimized for a certain hashing algorithm, and switching to another, e.g. SHA-256 → X11, is unfeasible. Illiquid mining market — Most of the global hash power is illiquid and not rentable. Therefore, a large upfront investment is required to build significant hashing power. The upfront cost for an attack is almost always not worth it. Opportunity cost — Cryptocurrencies are usually designed to heavily favour good actors by providing them with greater rewards for acting in the benefit of the entire network. Any attack must outweigh the risk of failure including loss of mining rewards, loss of reputation and damage to the network. Long-term miners do not want to destroy their future earning potential by successfully attacking a network, shaking market confidence, and causing the price to fall.
But times are changing. The mining market is becoming more liquid.
Why is the Liquid Mining Market Growing?
The increase of total hashing power in the long-run.
The long-run increase of cryptocurrency prices will incentivize miners to invest in hashing power until any incremental gain is equal to the cost. In other words, if value of rewards continue to go up, or if the cost per unit of mining power decreases, miners will invest in more hashing power. Both...