Miner consolidation is a long-standing problem with Bitcoin itself.
When Ittay and I discovered selfish mining [1], we were quite worried about the size of mining pools at the time. Even though we also came up for a fix against selfish mining, the fix only prohibits selfish mining for pools <25%, and we also found that there can never be a fix to prohibit selfish mining for pools >=33%.
Things looked grim for a while, and we played a role in pushing back against GHash when they exceeded 51% around April of '14. The only tool that the community had at the time to break up large miners was just social pressure.
In part as a reaction to GHash crossing of the 51% line, we [2] and Andrew Miller et al [3] came up with techniques based on non-outsourceable puzzles. This is a cool technique that would make it difficult for miners to run large open pools. It does require a potentially disruptive change to Bitcoin, so it's good to have in one's back pocket if the mining situation gets out of hand, but it's not something you want to deploy.
Luckily, Ittay's subsequent work on the Miner's Dilemma [4] discovered an incredibly interesting result: it pays for miners to attack other miners who are running large open pools. This puts natural pressure on miners to not open themselves up to the public and accept people into their pools willy nilly. This in turn is, I think, fantastic news, as it means that the problem may take care of itself, at least when it comes to open pools.
Overall, the distribution of mining power is a point of concern for everyone in the Bitcoin space. The situation looked bleak at first, as it looked like there were few mechanisms to keep open pools from growing ever larger. But now we have a strong technical solution and a natural process that is well-characterized. Large solo miners still remain an ongoing concern.
This is interesting stuff, but it's still a stop gap. As you say, large solo miners are an ongoing concern.
If bitcoin ever makes it big, IMO, it'll be large corporations running mining operations. Just as the general population does most of its services through huge corporations, mining bitcoin will probably be done by them as well.
What do you think of Proof of Stake systems? Are they feasible? I'm working on one, btw, with a shared spending pool and an ability to vote to spend the pool, and to change the code of the official client, thereby changing the rules of the system.
When Ittay and I discovered selfish mining [1], we were quite worried about the size of mining pools at the time. Even though we also came up for a fix against selfish mining, the fix only prohibits selfish mining for pools <25%, and we also found that there can never be a fix to prohibit selfish mining for pools >=33%.
Things looked grim for a while, and we played a role in pushing back against GHash when they exceeded 51% around April of '14. The only tool that the community had at the time to break up large miners was just social pressure.
In part as a reaction to GHash crossing of the 51% line, we [2] and Andrew Miller et al [3] came up with techniques based on non-outsourceable puzzles. This is a cool technique that would make it difficult for miners to run large open pools. It does require a potentially disruptive change to Bitcoin, so it's good to have in one's back pocket if the mining situation gets out of hand, but it's not something you want to deploy.
Luckily, Ittay's subsequent work on the Miner's Dilemma [4] discovered an incredibly interesting result: it pays for miners to attack other miners who are running large open pools. This puts natural pressure on miners to not open themselves up to the public and accept people into their pools willy nilly. This in turn is, I think, fantastic news, as it means that the problem may take care of itself, at least when it comes to open pools.
Overall, the distribution of mining power is a point of concern for everyone in the Bitcoin space. The situation looked bleak at first, as it looked like there were few mechanisms to keep open pools from growing ever larger. But now we have a strong technical solution and a natural process that is well-characterized. Large solo miners still remain an ongoing concern.
Hope this is useful.
[1] http://arxiv.org/abs/1311.0243
[2] http://hackingdistributed.com/2014/06/18/how-to-disincentivi...
[3] https://cs.umd.edu/~amiller/nonoutsourceable_full.pdf
[4] http://hackingdistributed.com/2014/12/03/the-miners-dilemma/