Miners' Reward Elasticity and Stability of Competing Proof-of-Work Cryptocurrencies

Kohei Kawaguchi and Shunya Noda

No u58ns, SocArXiv from Center for Open Science

Abstract: Proof-of-Work cryptocurrencies, such as Bitcoin and its forks, hire miners (freelance contributors) to maintain the system by algorithmically setting the reward. Therefore, the nature of miners' labor supply is essential for the cryptocurrency's stability. We develop a short-run supply-side model of the multicurrency mining market and estimate miners' labor supply elasticity by exploiting the discontinuity created by an event called halving. The stability of Bitcoin hinges on external factors lowering the labor supply elasticity, such as the interaction with competing currencies. Upgrading algorithm can stabilize Bitcoin regardless of external factors and improve the mining market's energy consumption rate by 2.9%.

Date: 2022-08-26
New Economics Papers: this item is included in nep-ene and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:u58ns

DOI: 10.31219/osf.io/u58ns

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