Does a higher hashrate strengthen Bitcoin network security?

Daehan Kim (), Doojin Ryu () and Robert I. Webb ()
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Daehan Kim: 22nd Infantry Division, Republic of Korea Army
Doojin Ryu: Sungkyunkwan University
Robert I. Webb: McIntire School of Commerce, University of Virginia

Financial Innovation, 2024, vol. 10, issue 1, 1-15

Abstract: 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.

Keywords: Bitcoin; Blockchain security; Blockchain sustainability; Financial innovation; Proof-of-work (search for similar items in EconPapers)
JEL-codes: G12 G29 L86 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s40854-023-00599-8

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