Poor computing power and wealthy capital: the centralization cycle in the blockchain world

The article explores the tension between decentralization ideals and centralization tendencies in blockchain ecosystems, drawing parallels to historical cycles of division and unification.

PoW Realities: Bitcoin's vision of decentralized mining is undermined by industrial-scale competition, forcing small miners to join pools and creating new power centers.
PoS Capital Bias: Proof-of-Stake systems favor wealthier participants, leading to capital oligarchy where larger stakes yield disproportionate rewards and governance control.
Centralized Power Nodes: Foundations (e.g., Ethereum, Solana), exchanges (e.g., Binance, Coinbase), and VCs (e.g., a16z) act as centralized "wealth-making machines" that shape ecosystems through funding, listings, and narrative control.
Barriers to Entry: Resource concentration, high sunk costs, and narrative dominance make it increasingly difficult for grassroots projects to succeed without aligning with established power networks.
Meme Coin Rebellion: As serious innovation paths narrow, newcomers turn to meme coins as a form of protest against VC-dominated structures, though these too often become co-opted by capital.
Cyclical Nature: Decentralization is not a static outcome but a dynamic struggle against centralizing forces, reflecting historical patterns where efficiency and order alternate with innovation and fragmentation.

The conclusion suggests that blockchain’s destiny lies not in preventing centralization, but in striving for more equitable and transparent structures in each new cycle.

"The general trend of the world is that after a long period of division, there will be unification; after a long period of unification, there will be division." This famous quote from the opening chapter of "Romance of the Three Kingdoms" describes the cycle of dynasties in history, but if we turn our attention to the blockchain and crypto world, are we also repeating this fate? Decentralization was originally an ideal born in the name of countering monopolies and breaking down authority, but in the evolution of PoW and PoS, we have repeatedly witnessed the resurgence of "centralized power." Small miners from humble backgrounds can no longer fight alone and are forced to rely on mining pools; in the world of PoS, more capital bolsters the power of the market. At the end of decentralization, it seems there's always a shadow of centralization.

1. The Ideal of PoW and the Reality of Mining Pools

Bitcoin's white paper depicts a fair world: anyone with computing power can participate in consensus and earn rewards. This is the quintessential decentralized vision—everyone is equal, and nodes are autonomous.

As the competition for computing power intensifies, it's almost impossible for a single miner to independently mine a block. A few hundred terabytes of computing power can only compete with mining pools operating tens of thousands of terabytes. Consequently, small miners are forced to join forces within mining pools, contributing their computing power in exchange for proportionally distributed rewards.

The "permissionless" ideal of PoW also faces challenges from economic realities. For a mature PoW network like Bitcoin, independent mining is no longer feasible for small miners. The competition for computing power on the Bitcoin network has reached an industrial scale, requiring massive investments in expensive ASIC mining machines and cheap electricity. This is no longer a competitive landscape for independent workers.

Mining pools have become the new power centers. They coordinate computing power, select blocks, and even, in extreme cases, launch "computing power attacks." Instead of achieving pure decentralization, PoW has been driven by economies of scale, reshaping itself into a centralized alliance.

2. The Capital Logic of PoS: Currency Power is Royal Power

If the inequality of PoW comes from the capital threshold of computing power equipment, then PoS is the naked logic of financial capital.

In the PoS world, holding coins confers power. More stake means higher block generation odds and higher returns. This means that large capital accounts (exchanges, funds, and early-stage whales) naturally enjoy a stronger compounding effect: the richer they are, the more money they can earn, ultimately monopolizing network governance and security.

It's difficult for new entrants to achieve breakthrough success, or what's known as a "high-achieving child." This is driven by its inherent economic model. Besides the Matthew effect of capital, large holders receive more rewards, which, through reinvestment, further increase their equity and future returns, snowballing their influence.

High entry costs also limit entry barriers. The re-centralization of staking pools has also led to new centralization, with large amounts of funds concentrated in the hands of a few large service providers (such as Lido and Coinbase), making these entities the new centers of power.

This is almost a mirror image of capitalist society: it's difficult for children from humble backgrounds to become successful because the poor lack the opportunity to accumulate wealth, while the rich constantly exploit compound interest to expand their advantage. Decentralization, in this context, gradually evolves into the self-replication of capital oligarchs.

3. The Dilemma of Decentralization: Technological Ideals vs. Real Power

Whether it is the mining poolization of PoW or the capital oligopoly of PoS, they both reveal a fact: decentralization is only the starting point, and centralization is the result of the process.

This is no different from the real world. Capitalist markets claim to promote free competition, but they often devolve into oligopolies. Political societies emphasize decentralization, but ultimately they tend toward centralization. As an experiment in the "digital society," blockchain is naturally subject to this historical trend.

4. Centralized “Wealth-Making Machines”: Foundations, Exchanges, and the Birth of New Riches

The ideal of decentralization emphasizes equal participation for everyone, but in reality, if a new project wants to be seen by the market, it can hardly avoid several centralized "wealth-making machines."

1. The ecological prosperity of many public chains is not due to natural growth, but the blood transfusion from the foundation.

The Ethereum Foundation: Through grants, hackathons, and research funding, it has shaped the prosperity of DeFi, Layer 2, and ZK technologies. Without the Foundation's long-term investment, the Ethereum ecosystem would not have the moat it has today.
Solana Foundation: During the 2021 bull market, it continued to invest in projects such as DeFi (Serum), NFT (Magic Eden), and GameFi (StepN), using funds and resources to quickly build a new public chain into an ecological matrix.

Without the support of these foundations, it would be almost impossible for a single development team to break through the complex and fierce competition in the public chain.

2. The star-making effect of exchanges: In the crypto market, exchanges are traffic gateways. Listing on Binance, Coinbase, and OKX often determines whether a project will attract global attention.

Binance: Without airdrop, there will be no listing and no liquidity, but this is the liquidity "destination" of every project.
Coinbase/Upbit listing effect: Although the effect is weakening, it is still regarded as a treasure by the project parties.
OKX/Bybit Launchpool: Also using the “mining and listing” model, it allows new projects to quickly gain exposure and a user base.

In an ecosystem with a market capitalization of > USD 10 billion, small teams have almost no chance of independent competition and must rely on the endorsement and pledge of allegiance from exchanges.

3. VC, capital network and KOL Well-known VC (a16z, Paradigm, Yzi Labs, Multicoin, etc.) are not only capital providers, but also narrative makers and voice amplifiers.

a16z: During the DeFi Summer, we strongly promoted Uniswap and Compound, and later promoted the concepts of NFT and Web3.
Yzi Labs: Invest in and promote the BNB Chain ecosystem. Failure to enter the core circle means failure to gain ecological support.

Without the spotlight of these capitals, most protocols, no matter how technologically advanced they are, may be buried.

5. The dilemma of the poor: Why is it becoming increasingly difficult for new rich people to emerge?

Today's blockchain ecosystem is superficially a decentralized open network, but in reality:

Uneven distribution of resources: Foundation money, exchange traffic, and VC capital are more concentrated within the "network of relationships."
Narrative control: Top capital and exchanges can determine market heat and define what is the "next trend."
High sunk costs: If a new project does not have sufficient financial support (from market makers), it will be difficult for it to gain market recognition and liquidity, let alone the possibility of being listed on an exchange.
Exchanges > Market Makers > Traffic > Project Owners, Project Owners are at the bottom of the food chain

This has led to the "decentralized underdogs", that is, ordinary developers or grassroots teams, finding it increasingly difficult to break through the siege relying solely on technology or ideas. Ultimately, they can only rely on the "centralized power network" to grow into "centralized upstarts."

6. The Last Carnival: When the Way Out Is Blocked, Meme Becomes the Only Game

When the path to serious innovation is firmly controlled by capital and power networks, newcomers from humbler backgrounds naturally seek new paths forward. Unable to compete with the giants in the "value investing" game, they turn to another seemingly fairer, yet more frenetic, game: memes. This is precisely the current phenomenon: New entrants no longer cling to white papers and technical narratives, but instead flock to memes and pump-fun, because they no longer see a way out within the old paradigm.

The rise of meme coins is essentially a rebellion against the VC-dominated crypto world. They abandon complex utilities and roadmaps, returning to the purest core of internet culture: community, entertainment, and virality. For newcomers who see little hope, memes become an "obvious" escape. Driven by psychological factors like FOMO, a sense of community, and the thrill of dopamine, this lottery effect attracts a large number of speculators eager for quick profits.

Newcomers flocking to memes and pump fun aren't doing so out of ignorance, but rather a rational choice, having discerned the rules of the centralized, aristocratic game. When the path to social class advancement through technological innovation is blocked, plunging into the high-risk, high-reward, and more transparent meme craze becomes the only way they see and are willing to participate. This is a cry of desperation, but also a carnival of deconstruction against the old power structure.

Sadly, even memes have now become products of the dealers’ assembly line, becoming a capital power game wrapped in the guise of cultural memes and the attention economy.

7. Thinking: The Historical Cycle of Division and Integration

So, is decentralization just an illusion? Not necessarily.

Decentralization is not a final state that can be achieved once and for all, but an ongoing and dynamic struggle. It is an ideal and a countervailing force to centralization's inherent efficiency advantages and the natural tendency toward concentrated power.

It's more like another cycle of the "law of historical division and unification." Just like the succession of dynasties in Chinese history: long periods of division must inevitably unify, long periods of unification must inevitably lead to division. Centralization can bring order, efficiency, and security, but it also inevitably accumulates rigidity, corruption, and oppression. Decentralization unleashes freedom, innovation, and diversity, but it can also easily lead to division and inefficiency.

Technology merely accelerates this cycle, not disrupts it. PoW and PoS may simply represent different stages of the cycle, one emphasizing "computing power democracy" and the other "capital order," but both are destined to remain strong.

postscript

“It is difficult for a decentralized poor family to produce a centralized noble son.”

This isn't pessimism, but rather a sobering recognition of reality. Decentralization isn't a destination, but rather a cyclical force that challenges the old order, creates new possibilities, and ultimately breeds new centralization.

The question isn't whether decentralization will lead to centralization, but whether, in the next round of division and integration, we can build a more just, transparent, and sustainable order. This may be the true destiny of blockchain.