Market Structure in Bitcoin Mining / June Ma, Joshua S. Gans, Rabee Tourky.

Format:

Book

Author/Creator:

Ma, June.

Contributor:

National Bureau of Economic Research.

Gans, Joshua S.

Tourky, Rabee.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24242.

NBER working paper series no. w24242

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We analyze the Bitcoin protocol for electronic peer-to-peer payments and the operations that support the "blockchain" that underpins it. It is shown that that protocol maps formally into a dynamic game that is an extension of standard models of R&D racing. The model provides a technical foundation for any economic analysis of 'proof of work' protocols. Using the model, we demonstrate that free entry is solely responsible for determining resource usage by the system for a given reward to mining. The endogenous level of computational difficulty built into the Bitcoin protocol does not mitigate this usage and serves only to determine the time taken to process transactions. Regulating market structure will mitigate resource use highlighting the importance of identifying the benefits of competition for the operation of the blockchain.

Notes:

Print version record

January 2018.