Naively, it seems to me that as long as the profit you get out of mining scales linearly with the amount of money you put in, the richest player will eventually control all of the hash rate. Yet this doesn't seem to be the case (so far?). Is my thinking incorrect, if so, why?
Well, one thing is that the amount you mine isn’t linear in your hash power, it is proportional to the proportion of the hash power that you control.
Also, measures of how centralized the mining is, is widely believed to have a substantial impact on the price. Miners may believe that if they were to purchase enough mining power to control a majority, that the price they could sell the tokens for would go down, actually reducing their profit. Whether this actually would reduce their profit, I don’t know. Also, conceivably, if they were to buy more mining power, possibly their main sources of competition might respond in kind, resulting in the same income, but higher costs.
By a similar argument to the “avoid there being a majority”, might also want to avoid the case where “if just one large miner drops out, there would be a majority” if people think there is a non-trivial chance of such a miner dropping out.
There is, as I understand it, a relatively small collection of large miners such that together they would comprise a majority. Perhaps this is around the smallest number of independent entities that people will expect to be large enough that they will not collude to do bad stuff, and therefore no miner will buy enough additional mining power to cause this number to shrink, out of fear of making the price go down?
Why would it? E.g. if mining has a 1% return on investment and there are three actors with 4, 5, and 7 units of hash power, and they reinvest profits into more mining rigs, then a year later they will have 4.04, 5.05, and 7.07 units of hash power---the ratios stays the same.
Profit from mining (for example Bitcoin) does not scale linearly with the amount of money you put in. If only a few miners control the hash power of the network, that will discourage use of the currency and drive the price of it down. It's not in the interest of miners to control > 50%.
