Bitcoin Mining as a Contest
This paper presents a simple game theoretic framework, assuming complete information, to model Bitcoin mining activity. It does so by formalizing the activity as an all-pay contest: a competition where participants contend with each other to win a prize by investing in computational power, and victo...
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| Language: | English |
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University Library System, University of Pittsburgh
2017-09-01
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| Series: | Ledger |
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| Online Access: | https://ledgerjournal.org/ojs/index.php/ledger/article/view/96 |
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doaj-art-a9695aa70217423e847b7f0d3494acae2018-09-04T17:34:01ZengUniversity Library System, University of PittsburghLedger2379-59802017-09-0120313710.5195/ledger.2017.9615Bitcoin Mining as a ContestNicola Dimitri0University of SienaThis paper presents a simple game theoretic framework, assuming complete information, to model Bitcoin mining activity. It does so by formalizing the activity as an all-pay contest: a competition where participants contend with each other to win a prize by investing in computational power, and victory is probabilistic. With at least two active miners, the unique pure strategy Nash equilibrium of the game suggests the following interesting insights on the motivation for being a miner: while the optimal amount of energy consumption depends also on the reward for solving the puzzle, as long as the reward is positive the decision to be an active miner depends only on the mining costs. Moreover, the intrinsic structure of the mining activity seems to prevent the formation of a monopoly, because in an equilibrium with two miners, both of them will have positive expected profits for any level of the opponent’s costs. A monopoly could only form if the rate of return on investment were higher outside bitcoin.https://ledgerjournal.org/ojs/index.php/ledger/article/view/96Bitcoin miningGame TheoryNash Equilibrium |
| institution |
Open Data Bank |
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Open Access Journals |
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| language |
English |
| format |
Article |
| author |
Nicola Dimitri |
| spellingShingle |
Nicola Dimitri Bitcoin Mining as a Contest Ledger Bitcoin mining Game Theory Nash Equilibrium |
| author_facet |
Nicola Dimitri |
| author_sort |
Nicola Dimitri |
| title |
Bitcoin Mining as a Contest |
| title_short |
Bitcoin Mining as a Contest |
| title_full |
Bitcoin Mining as a Contest |
| title_fullStr |
Bitcoin Mining as a Contest |
| title_full_unstemmed |
Bitcoin Mining as a Contest |
| title_sort |
bitcoin mining as a contest |
| publisher |
University Library System, University of Pittsburgh |
| series |
Ledger |
| issn |
2379-5980 |
| publishDate |
2017-09-01 |
| description |
This paper presents a simple game theoretic framework, assuming complete information, to model Bitcoin mining activity. It does so by formalizing the activity as an all-pay contest: a competition where participants contend with each other to win a prize by investing in computational power, and victory is probabilistic. With at least two active miners, the unique pure strategy Nash equilibrium of the game suggests the following interesting insights on the motivation for being a miner: while the optimal amount of energy consumption depends also on the reward for solving the puzzle, as long as the reward is positive the decision to be an active miner depends only on the mining costs. Moreover, the intrinsic structure of the mining activity seems to prevent the formation of a monopoly, because in an equilibrium with two miners, both of them will have positive expected profits for any level of the opponent’s costs. A monopoly could only form if the rate of return on investment were higher outside bitcoin. |
| topic |
Bitcoin mining Game Theory Nash Equilibrium |
| url |
https://ledgerjournal.org/ojs/index.php/ledger/article/view/96 |
| _version_ |
1612618228945649664 |