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The Bitcoin Mining Game: On the Optimality of Honesty in Proof-of-work Consensus Mechanism

Author

Listed:
  • Juan Beccuti
  • Christian Jaag

Abstract

We consider a game in which Bitcoin miners compete for a reward of each solved puzzle in a sequence of them. We model it as a sequential game with imperfect information, in which miners have to choose whether or not to report their success. We show that the game has a multiplicity of equilibria and we analyze the parameter constellations for each of them. In particular, the minimum requirement to find it optimal not to report is decreasing with the number of miners who are not reporting, and increasing the heterogeneity among players reduces the likelihood that they choose not to report.

Suggested Citation

  • Juan Beccuti & Christian Jaag, 2017. "The Bitcoin Mining Game: On the Optimality of Honesty in Proof-of-work Consensus Mechanism," Working Papers 0060, Swiss Economics.
    • Handle: RePEc:chc:wpaper:0060
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    File URL: http://www.swiss-economics.ch/RePEc/files/0060JaagBeccuti.pdf
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    Cited by:

    1. Giuseppe Varavallo & Giuseppe Caragnano & Fabrizio Bertone & Luca Vernetti-Prot & Olivier Terzo, 2022. "Traceability Platform Based on Green Blockchain: An Application Case Study in Dairy Supply Chain," Sustainability, MDPI, vol. 14(6), pages 1-14, March.

    More about this item

    Keywords

    Bitcoin; Mining; Proof of work; Game theory;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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