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On the profitability of selfish blockchain mining under consideration of ruin

Author

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  • Hansjörg Albrecher
  • Pierre-Olivier Goffard

    (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

Mining blocks on a blockchain equipped with a proof of work consensus protocol is well-known to be resource-consuming. A miner bears the operational cost, mainly electricity consumption and IT gear, of mining, and is compensated by a capital gain when a block is discovered. This paper aims at quantifying the profitability of mining when the possible event of ruin is also considered. This is done by formulating a tractable stochastic model and using tools from applied probability and analysis, including the explicit solution of a certain type of advanced functional differential equation. The expected profit at a future time point is determined for the situation when the miner follows the protocol as well as when he/she withholds blocks. The obtained explicit expressions allow us to analyze the sensitivity with respect to the different model components and to identify conditions under which selfish mining is a strategic advantage.

Suggested Citation

  • Hansjörg Albrecher & Pierre-Olivier Goffard, 2021. "On the profitability of selfish blockchain mining under consideration of ruin," Working Papers hal-02649025, HAL.
    • Handle: RePEc:hal:wpaper:hal-02649025
    Note: View the original document on HAL open archive server: https://hal.science/hal-02649025v3
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    References listed on IDEAS

    as
    1. Avanzi, Benjamin & U. Gerber, Hans & S.W. Shiu, Elias, 2007. "Optimal dividends in the dual model," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 111-123, July.
    2. Pierre-Olivier Goffard, 2019. "Fraud risk assessment within blockchain transactions," Working Papers hal-01716687, HAL.
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    Cited by:

    1. Hansjörg Albrecher & José Carlos Araujo-Acuna, 2022. "On The Randomized Schmitter Problem," Methodology and Computing in Applied Probability, Springer, vol. 24(2), pages 515-535, June.
    2. Hansjörg Albrecher & Dina Finger & Pierre-Olivier Goffard, 2022. "Blockchain mining in pools: Analyzing the trade-off between profitability and ruin," Working Papers hal-03336851, HAL.

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    Keywords

    Blockchain; miner; cryptocurrency; ruin theory; dual risk model;
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