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Does a higher hashrate strengthen Bitcoin network security?

Author

Listed:
  • Daehan Kim

    (22nd Infantry Division, Republic of Korea Army)

  • Doojin Ryu

    (Sungkyunkwan University)

  • Robert I. Webb

    (McIntire School of Commerce, University of Virginia
    Sungkyunkwan University)

Abstract

In the blockchain world, proof-of-work is the dominant protocol mechanism that determines the consensus of the ledger. The hashrate, a measure of the computational power directed toward securing a blockchain through proof-of-work consensus, is a fundamental measure of preventing various attacks. This study tests the causal relationship between the hashrate and the security outcome of the Bitcoin blockchain. We use vector error correction modeling to analyze the endogenous relationships between the hashrate, Bitcoin price, and transaction fee, revealing the need for an additional variable to achieve our aim. Employing a measure summarizing the growth of demand factors in the Bitcoin ecosystem indicates that hashrate fluctuations significantly influence security level changes. This result underscores the importance of the hashrate in ensuring the security of the Bitcoin blockchain.

Suggested Citation

  • Daehan Kim & Doojin Ryu & Robert I. Webb, 2024. "Does a higher hashrate strengthen Bitcoin network security?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-15, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-023-00599-8
    DOI: 10.1186/s40854-023-00599-8
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    More about this item

    Keywords

    Bitcoin; Blockchain security; Blockchain sustainability; Financial innovation; Proof-of-work;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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