Distributed Bitcoin Mining: The Future

April 5, 2025 by Jhon E. Bermúdez

Curious about the future of Bitcoin mining? In a recent interview with Bitcoin Magazine, Troy Cross—philosophy professor, humanities scholar, and Bitcoin enthusiast—dives deep into the ideas from his latest article in “The Mining Issue.” The article? It’s called “Why the Future of Bitcoin Mining is Distributed,” and trust us, the discussion is fascinating. Want to

In this engaging conversation, Troy unpacks the forces that could lead to Bitcoin mining becoming overly centralized. He lays out a pretty convincing case for why we actually *need* a more spread-out distribution of mining power. Even with the rise of massive mining farms thanks to economies of scale, Troy argues that there’s a crucial—and potentially profitable—reason to decentralize. He shares some really insightful thoughts on what the future infrastructure of Bitcoin might look like.

This article is part of Bitcoin Magazine’s “The Mining Issue”—a must-read for anyone interested in this crucial aspect of Bitcoin. Subscribe to get your copy and dive even deeper.

Intro

Remember when Donald Trump declared he wanted all remaining bitcoin to be “MADE IN THE USA!!!”? Bitcoiners actually cheered! Mining is seen as a good thing, something we want happening here at home. And it’s true, the U.S. is really making strides toward dominating the Bitcoin mining industry. Just the publicly traded U.S. mining companies alone are responsible for a whopping 29% of Bitcoin’s hashrate, and that percentage only seems to be climbing. Pierre Rochard, VP of Research at Riot Platforms, even predicts that by 2028, U.S. miners could be generating 60% of the total hashrate.

But let’s be real for a second: having most Bitcoin mining concentrated in the U.S., especially in the hands of huge public companies (rather than, say, a small miner in everyone’s home), is actually kind of a scary thought. If a single nation, especially one as powerful as the U.S., controls the majority of mining, then miner behavior becomes influenced not just by Bitcoin’s built-in economic incentives, but also by the political climate and whatever government happens to be in charge. If Trump actually got his wish, it could seriously jeopardize Bitcoin’s future as a truly independent, non-state form of money.

So, let’s dive in. I’m going to lay out what a nation-state attack on Bitcoin through miner regulation could look like. Then, we’ll explore the reasons Bitcoin mining has become so concentrated in large U.S. data centers, run by just a few big companies. Finally, I want to make the case that the future of Bitcoin mining probably won’t look like its recent past. Actually, I think Bitcoin mining is likely headed back towards a more spread-out model, closer to its early days, where miners were as numerous and geographically diverse as the nodes themselves.

I’ll also argue that despite some Bitcoiners getting excited about “hash wars” and political posturing, nation-states *actually* have a vested interest in a future where no single country dominates Bitcoin mining. This idea of “non-dominance” is what makes Bitcoin different from other technologies, like weapons, where domination is the ultimate goal. With Bitcoin mining, however, dominating is actually losing. When nation-states really grasp this unique game theory, they’ll realize it’s in their best interest to help protect Bitcoin from miner concentration.

The Attack

Let’s imagine for a moment that the U.S. DID have the majority of Bitcoin hashrate. How exactly could Bitcoin be attacked in that scenario?

Well, it could be surprisingly simple. With a single order from the U.S. Treasury Department, the government could mandate that all miners block transactions from certain addresses—think countries like North Korea or Iran. They could also forbid miners from building on any chain that includes these “forbidden” blocks. Basically, every miner would be legally obligated to refuse adding any block to the chain if it contained a transaction that had been flagged. And here’s the kicker: large U.S. miners, especially the publicly traded ones, would have no real choice but to comply. Company executives aren’t exactly eager to go to jail.

But it’s even trickier than that. Even miners operating outside the U.S., or smaller, private U.S. miners who *might* be tempted to ignore the law, would likely end up having to censor transactions anyway. Why? Because if a “rogue” miner slipped a forbidden transaction into a block, the law-abiding miners would be forced to essentially ignore that block, building their chain directly on top of the previous, government-approved blocks. This is called “orphaning” the block, and it means the rogue miner’s reward—their newly mined bitcoin—would also be orphaned. They’d be left with nothing to show for their efforts.

What happens after that is a bit murky. None of the possible outcomes are great. We’d likely end up with some kind of fork in the Bitcoin chain. This new fork *could* use a different algorithm altogether, instantly making all existing mining hardware obsolete for the new chain. Alternatively, the fork could stick with the same algorithm but manually reject any blocks coming from identified “bad actors.” Either way, we’d be looking at a government-compliant version of Bitcoin alongside a non-compliant one, with the government-approved fork effectively becoming the “official” version running the original code.

When you bring up these kinds of scenarios with Bitcoiners, the common response is: “Everyone would dump the ‘government coin’ and flock to the ‘freedom coin!'” But would that *really* happen? Maybe those of us who read *Bitcoin Magazine*, freedom-minded individuals and cypherpunk types, would immediately ditch the censored version for a new, uncensored variant. But it’s hard to imagine major players like BlackRock, Coinbase, Fidelity, and the rest of Wall Street following suit. So, the future economic value of these two forks, especially five or ten years down the line, is far from certain. Even if a non-compliant fork of Bitcoin did manage to survive and maintain significant economic value, it would undoubtedly be weakened, both in terms of its economy and its core philosophical principles.

Now, let’s imagine that same attack, but with a mining network that’s much more geographically spread out. Say U.S. miners only account for, say, 25% of the total hashrate. If the U.S. government still tries to force miners to blacklist addresses and orphan blocks, it’s still a problem, no doubt. But with 75% of the mining power sitting outside the reach of U.S. law, those miners would continue to include non-compliant transactions. This means the longest, “heaviest” chain would still incorporate these uncensored blocks. In this scenario of distributed mining, if a fork *does* happen, it’s much more likely to be the government-compliant Bitcoin that would have to break away and abandon proof-of-work, perhaps relying on some form of “social consensus” instead.

Even in this distributed scenario, it’s still a pretty grim situation. Custodial services within the U.S. might be forced to support this new, compliant version of Bitcoin, which would definitely pose an economic threat, at least temporarily, to the *real* Bitcoin. However, if the majority of the mining network remains outside the U.S., this scenario looks less like the U.S. co-opting Bitcoin and more like the U.S., essentially, opting *out* of it. That’s a crucial difference compared to a world where the U.S. has mining dominance.

How Did Bitcoin Mining End up in Large U.S. Data Centers?

The story of Bitcoin mining’s evolution is really a textbook example of economies of scale in action.

Let’s rewind to the very beginning. What we now think of as the distinct jobs of miners—grouping transactions into blocks, doing the energy-intensive “proof-of-work,” and broadcasting those blocks to the network—were originally just part of what *all* Bitcoin nodes did. Back then, there weren’t separate “miners”; every node could mine with just a click. So, in those early days, mining was as decentralized as the network of nodes itself.

But using just your computer’s CPU for mining didn’t last long. It quickly became more efficient to mine using graphics cards (GPUs) and then specialized chips called FPGAs. And starting around 2013, ASICs—Application-Specific Integrated Circuits—took over. For a long time, mining remained a vestigial function within Bitcoin nodes, until Bitcoin Core finally decided to cut ties. In version 0.13.0 of the software, released in 2016, they removed mining from the core node software entirely. Once mining became its own thing, separate from running a node, with its own specialized equipment and expertise, it was almost inevitable that it would start to scale up. It was just the natural progression.

Think about Adam Smith’s famous example of a pin factory in *The Wealth of Nations*. He described a factory with just 10 workers that could produce an astonishing 48,000 pins per day. If each worker tried to make pins individually, they might only manage one per day, at most. But by dividing up the pin-making process into specialized steps, developing tools for each step, and working together in sequence, they achieved incredible efficiency. One way to look at it is this: for a factory already making 48,000 pins, the cost of making *one more* pin is tiny, because they’ve already invested in the equipment and skills. They just need a little more labor and materials. But for someone making just one pin a day, the effort needed to make a second pin effectively doubles their production cost.

Mining, once it broke free from the constraints of the CPU, had many of the same characteristics that make pin factories so efficient. ASICs are like specialized pin-making machines. So are the data centers designed specifically to handle the high power demands and cooling needs of those ASICs. And compared to running a miner in your basement, a large-scale commercial mining facility can spread fixed costs across many more mining units. Some examples of costs that are relatively fixed, regardless of the scale of mining, include:

Power system expertise
Power distribution equipment
Control systems expertise
ASIC repair expertise
Cooling system expertise
Cooling infrastructure
Legal expertise
Financial expertise

In a bigger mining operation, not only do these fixed costs get spread out over more revenue-generating machines, but you also gain leverage when negotiating with suppliers and labor. Scale up from a basement operation to a small setup in a business park, and you can likely get a better electricity rate. Scale up further to a massive mega-center, and you can afford to hire power specialists who can negotiate sophisticated contracts with energy suppliers and hedge against price fluctuations. Having to send off a single machine for repair every time it breaks down is much more expensive per incident than employing a dedicated repair technician to troubleshoot and fix ASICs on-site, provided your operation is big enough to justify it. And when you’re buying ASICs from manufacturers, the price you pay depends on the size of your order. Major players can drive a much harder bargain, squeezing smaller miners just like Walmart squeezed local shops by demanding lower prices from suppliers.

Economies of scale shouldn’t come as a surprise to anyone; they’re a factor in pretty much all manufacturing. These advantages of scale naturally explain how mining went from something I used to do with graphics cards in my basement 13 years ago to massive facilities consuming a gigawatt of power today.

But that only explains *why* mining scaled up, not *why* it became so concentrated in the U.S. and dominated by large public companies. To understand that, we need to consider a couple more things. First, another thing that scales incredibly well is financing. Large public companies have easy access to capital markets; they can raise huge amounts of cash by issuing stock or bonds. Small-scale miners don’t have those options. Sure, they can borrow money, but not on the same favorable terms as a big company. And the U.S. happens to have the most developed and deepest capital markets in the world. Second, the U.S. has a strong “rule of law” and a relatively stable legal system, which reduces the risk of, say, the government seizing your mining operation or regulators suddenly shutting you down.

The other major factor drawing mining to the U.S. in recent years was the availability of power infrastructure. After China banned Bitcoin mining, it suddenly became profitable to mine pretty much anywhere in the world with any ASIC. But the U.S. had readily available power infrastructure, particularly in the Rust Belt regions that were left behind when U.S. manufacturing moved overseas. The U.S. also had abundant, stranded power in West Texas — wind and solar energy encouraged by subsidies, but not well connected to East Texas or the rest of the country. Following the China ban, miners quickly moved in to utilize this underutilized Rust Belt infrastructure and take advantage of cheap land and abundant power in West Texas to build massive data centers.

This ability to raise and deploy massive amounts of capital is a huge advantage, and it compounds with other advantages, especially given Bitcoin’s fixed, global block reward. With tons of funding from the markets, the biggest public Bitcoin miners were able to secure the newest, most efficient, and most powerful ASICs. They could also negotiate the best power contracts, hire top experts in firmware and software, and so on. This not only put smaller miners at a disadvantage, but the large miners could also significantly increase the global hashrate, driving up mining difficulty. When the price of Bitcoin then dropped, with these massive, debt-fueled ASIC fleets already deployed, profit margins shrank to almost nothing for miners who didn’t have these economies of scale. Even a public miner going through bankruptcy could keep running their massive operation during restructuring, squeezing out smaller competitors while navigating the legal process.

And that’s how mining went from a hobbyist pursuit to a gigawatt-scale industry, and why it ended up settling so heavily in America. Bitcoin mining is a fiercely competitive business, and the cost advantages of scale proved to be the deciding factor, especially when fueled by debt and stock dilution.

Why Mining Will Be Distributed and Small-Scale Once Again

But hold on, it’s not all about getting bigger and bigger. Just as there are *economies* of scale, there are also *diseconomies* of scale, where, beyond a certain point, making things bigger actually makes production more expensive per unit. Think about food production. It’s pretty clear why we don’t have just *one* giant food factory trying to feed the entire world. Yes, there are definitely efficiencies in large-scale food production—look at how farm sizes have increased over the last century—but there are limits. Fresh ingredients have to be transported to a central factory, and the finished food then has to be shipped out to consumers everywhere. Both the ingredients and the final products are often perishable and bulky. The shipping costs to and from a single global food factory would be insane, and the quality would suffer compared to local markets with fresher food. This same principle explains why sawmills and paper mills tend to be located near forests, and why bottling plants are often near sources of fresh water.

Now, consider Bitcoin. The amazing thing is that “shipping” Bitcoin costs essentially nothing. It’s just a matter of updating a ledger entry on the blockchain, which takes seconds. And while I might joke about mining our “artisanal Portland bitcoin,” the truth is there’s no such thing as local bitcoin flavors that differ based on where they’re mined. All bitcoin is exactly the same, no matter where it’s produced. That would seem to suggest that global bitcoin production *should* centralize to the single, absolute best place to mine it.

There’s just one major snag with centralizing all mining into a single location: Bitcoin mining is incredibly energy-hungry. In fact, it already uses more than 1% of all electricity generated worldwide. Electricity is the biggest running cost for Bitcoin mining, often making up 80% of operating expenses. And here’s the crucial difference: unlike Bitcoin itself, electricity is a real pain to transport efficiently. Actually, it’s a lot like food that spoils instantly and needs expensive, specialized infrastructure to move around. For electricity, that infrastructure is power lines, transformers, substations—the whole electrical grid.

The cost of moving electricity around is actually a huge part of the overall electricity price. What we call “generation” is often just a small piece of the total cost, which also includes hefty “transmission and distribution” fees. And while the cost of electricity *generation* keeps dropping thanks to advances in solar panel technology and manufacturing, investments in grid infrastructure are only getting more and more expensive. So, it makes absolutely zero sense to try and ship electricity across the globe to power a single, giant Bitcoin factory. Instead, the smart move is for Bitcoin factories to set up *right where electricity is generated*, avoiding those transmission and distribution costs altogether, and then “ship” the Bitcoin for free from those locations. This is already happening, and it’s called “behind-the-meter” mining.

Mining companies will always try to emphasize their unique advantages: superior firmware, better mining pools, advanced cooling systems, sophisticated financial strategies, top-tier power procurement expertise, and top-notch management. But when you boil it down to the core of what they do, there’s really not much difference between different mining companies. They all produce the same identical product, it costs nothing to transport, and they’re all fundamentally using the same machines (ASICs) to convert electricity into Bitcoin. Differences in electricity costs are what primarily determines which miners will succeed and which will fail. In times of stagnant or slowly rising Bitcoin prices, only the miners with access to the very cheapest electricity will remain profitable.

So, here’s the main argument for why we’re likely to see a much more distributed global mining network in the future. First, Bitcoin mining is inherently drawn to the cheapest energy sources in the world. Second, cheap energy is spread out all over the globe and often found “behind the meter.” Therefore, third, Bitcoin mining will also become geographically distributed and increasingly located behind the meter.

Let’s play out a scenario for a moment: Imagine Donald Trump’s wish comes true, and all Bitcoin mining happens in the U.S., and the mining industry is in a state of equilibrium, meaning profit margins are razor-thin. If someone discovers a source of power *anywhere else* in the world that’s cheaper than the average U.S. miner’s electricity cost, and they set up ASICs there, the total hashrate will increase, and some U.S. miners (the ones with the highest costs) will be forced to shut down. This process will keep repeating until Bitcoin mining is only happening where energy is cheapest globally.

Cheap energy comes in many forms: natural gas in the Middle East and Russia, hydroelectric projects in places like Kenya and Paraguay, solar power in Australia, Morocco, and Texas. The reason energy is distributed is simple: *nature* distributed it. Rain and elevation changes (rivers) are everywhere. Fossil fuel deposits are scattered across the globe. The wind blows almost everywhere, and of course, the sun shines almost everywhere.

In fact, the global distribution of solar energy is almost guaranteed by the Earth’s rotation. As the sun’s intensity peaks, solar-powered systems are almost guaranteed to waste some of that energy, because power grids are never designed to handle absolute peak generation. I predict that in the future, a significant chunk of Bitcoin hashrate will follow the path of the sun across the globe. Miners will be incentivized to use this excess solar energy, perhaps by overclocking their machines during peak sun hours, or by using older, less efficient ASICs that are only profitable during these brief periods of over-generation.

This core argument can be tweaked slightly to reach other conclusions about the future of mining too. For example, I also believe that there’s a lot of cheap power available at a small scale, but only a limited amount of truly cheap power at massive scales (100 MW+). It follows that, if Bitcoin mining continues to grow, small-scale mining will make a comeback, and the current trend towards massive mega-mines will reverse as large-scale sources of ultra-cheap power become rarer.

To understand why cheap power is often easier to find on a smaller scale, we could analyze specific examples. We could look at why natural gas flaring, a source of waste energy, happens in a distributed, small-scale way. Or why solar inverters are often undersized, leading to “clipped” power generation throughout the system. But I think it’s more useful to think about the underlying principle. When we find massive sources of cheap power, it’s often because of a massive *mistake*. That mistake could be something like building a huge dam or a nuclear power plant that wasn’t truly needed. But massive mistakes are relatively rare and expensive! There are limits to how much governments or companies will overbuild electricity generation capacity.

Smaller-scale mismatches between energy supply and demand are just inherently more common. For instance, if natural gas production at an oil well is large enough, it becomes worthwhile to build a pipeline to transport it. But if the gas production is relatively small, building a pipeline isn’t economically viable, and the gas becomes “stranded.” The same logic applies to landfills. The biggest landfills often have generators to capture methane and connect to the grid. But smaller landfills frequently don’t even bother collecting the methane, let alone generating electricity from it and feeding it into the grid. The same is often true for smaller dairy farms.

Furthermore, Bitcoin isn’t the only energy-intensive form of computation out there. If there are large amounts of super-cheap energy available, other types of computation—like AI and machine learning—will also move in and, because they are often *less* sensitive to electricity prices than Bitcoin miners, they’ll be willing to pay more for that power. These other forms of computation, at least currently, don’t scale down as effectively as Bitcoin mining. It seems like the days of mining Bitcoin using ultra-cheap, massive-scale power are limited. On the other hand, if you’re mining Bitcoin by capturing flared gas on a remote oil drilling site, far from any pipeline, there’s virtually no chance anyone will outbid you to do AI processing at your location. The same is true if you’re mining using excess power from your home solar panels. Small-scale energy waste, while less attractive to other energy consumers, is perfect for Bitcoin miners. Bitcoin mining can scale *down* to reach into these small pockets of wasted energy, where other types of large-scale energy consumers can’t.

Here’s another way to look at it, focusing on the distributed demand for waste heat. All the electrical energy that goes into a Bitcoin miner is conserved and comes out as low-grade heat. And miners are starting to use this waste heat to their advantage, heating greenhouses, homes, and even bathhouses. But typically, heating needs can be met with just a small number of mining machines. An ASIC or two can easily heat a home or a swimming pool. Using waste heat to offset heating costs makes mining more economically attractive. So, here’s another reason to believe that mining will become more globally distributed and smaller-scale: the demand for heat is also globally distributed— although higher in colder climates—and typically on a relatively small scale.

As I’ve argued, I believe Bitcoin mining is ultimately driven to the world’s cheapest energy. But this trend really only holds true if the price of Bitcoin rises at a moderate pace. In a crazy bull market—like we’ve seen several times—Bitcoin miners will use *any* energy they can get their hands on, wherever they can plug in their machines. If the price of Bitcoin suddenly skyrockets to $500,000, all my carefully constructed models go out the window! But even in that super-bullish scenario, mining becomes distributed, not because the *cheapest* power is distributed, but because *available* power is distributed. A $500,000 Bitcoin means *all* ASICs are profitable on pretty much *any* power source, and the U.S. simply doesn’t have the infrastructure to handle that kind of sudden demand surge, even if it wanted to. So, either way, Bitcoin mining ends up distributed.

It’s also important to remember that periods of super-high profit margins are always temporary. ASIC production will always ramp up to chase those profits, eventually driving margins back down. So, in the long run, the distribution of Bitcoin miners will still be determined by the global distribution of the world’s cheapest energy.

For my arguments to hold up, the *diseconomies* of scale have to outweigh the *economies* of scale that I described earlier. Figuring out the exact balance of these two forces would require a deep dive into the financial spreadsheets of all kinds of mining operations, which is beyond the scope here.

But it’s my strong belief that if the difference in electricity costs is significant enough, it will trump everything else. However, I’m not pretending to have offered a definitive “proof” here. These are just the broad strokes; nailing down the finer details is something left for you, the reader, to explore further.

Geopolitics

So far, we’ve been thinking about miner incentives mainly from an economic perspective, without really considering nation-states themselves. But we know that just like some countries are buying Bitcoin, others are also mining it, leveraging their own energy resources. Nation-states have their own motivations at play, beyond just what Satoshi envisioned. For example, Iran might mine Bitcoin to monetize its oil reserves because international sanctions make selling oil on the open market difficult or expensive. Russia might be doing it for similar reasons. These nation-state actors might even be willing to “mine at a loss” compared to miners who are paying market prices for their power, because their energy costs are essentially subsidized by their taxpayers. Their large-scale mining could, in turn, make it less profitable for everyone else, potentially pushing smaller, less efficient miners out of business.

However, I don’t see nation-state mining as inevitably leading to a concentration of hashpower. Actually, as things stand, mining in places like Russia and Iran is probably good for Bitcoin, because it helps balance out the growing dominance of U.S. public mining companies, which currently dwarf them in scale. Moreover, if any nation-state *does* start to produce a disproportionate share of the hashrate, especially if Bitcoin becomes a more significant part of the global economy, I’d expect other nation-states with a stake in Bitcoin’s success—or even just large Bitcoin holders—to start mining operations themselves, even if it means mining at a temporary loss, simply to maintain decentralization.

The game theory here is not what you might expect. Instead of a competition to dominate and win, Bitcoin is more like a game where everyone benefits when *no one* dominates, and everyone loses if *anyone* dominates. For almost every other technology or weapon system in the world, the best strategy is to achieve global dominance. That’s why we see fierce competition for dominance in areas like battery technology, chip manufacturing, drones, AI, and so on. In foreign policy, this kind of situation is often called the “Thucydides trap,” because it can lead to preemptive attacks on rising rivals. The potential reward for coming out on top is enormous, and the risk of falling behind can be catastrophic.

But when it comes to Bitcoin mining, if you achieve dominance, it’s actually bad for Bitcoin itself, and therefore bad for the value of Bitcoin, and ultimately, bad for *you*. If Bitcoin mining becomes concentrated in a single nation, everyone starts to worry about potential attacks on Bitcoin’s neutrality—the very thing that makes it valuable in the first place. For instance, Russia might hold Bitcoin to avoid the risk of the U.S. freezing its dollar reserves, as the U.S. did after the invasion of Ukraine. But if mining is concentrated in the U.S., Russia can’t be sure that its Bitcoin addresses wouldn’t be blacklisted by the U.S. Treasury Department. If Russia saw that threat becoming a reality, it might dump its Bitcoin holdings for some other asset. U.S. miners might initially see their share of block rewards increase as they gain dominance, but the *value* of those rewards would plummet as the price of Bitcoin itself declined. So, U.S. miners really shouldn’t *want* Russia to stop mining and sell off their Bitcoin. U.S. miners, in fact, shouldn’t want to “win” in this kind of dominance game. And if Bitcoin becomes a significant part of the U.S. economy, the U.S. itself shouldn’t want its miners to “win” either. Instead, if any nation gets close to dominating Bitcoin mining, we should expect those who are heavily invested in Bitcoin, including other nation-states, to start mining enough to prevent losses to their own investments.

So, Bitcoiners should actually *hope* that the USA mines enough Bitcoin to ensure that *no* country, including the U.S., mines a majority of it. That’s probably not the catchiest slogan for a political rally, and it doesn’t inspire the same excitement as talk of “hash wars.” But as a Bitcoiner, it’s the only truly rational outcome to hope for.