Is Monopolization Inevitable in Proof-of-Work Blockchains? Insights from Miner Scale Analysis

Aixing Li, Ke Gong (), Jiashun Li, Li Zhang and Xueting Luo
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Aixing Li: University of Chongqing Jiaotong
Ke Gong: University of Chongqing Jiaotong
Jiashun Li: University of Chongqing Jiaotong
Li Zhang: Big Data and Optimization Research Institute, Chongqing Polytechnic University of Electronic Technology
Xueting Luo: Qiqihar University

Computational Economics, 2025, vol. 66, issue 3, No 1, 1825-1850

Abstract: Abstract Blockchains use the Proof-of-Work (PoW) consensus mechanism to ensure security. However, if a few large miners increasingly control most of the computing power (hashrate) on the blockchain, the blockchain may become inoperable. To investigate whether this concern materializes, we examine the impact of miners’ revenue (i.e., cryptocurrency price and cryptocurrency output volume) on computing power using dynamic panel analysis, instrumental variables, and various robustness tests on miners’ panel data in the Bitcoin blockchain from 2011 to 2024. We found that cryptocurrency prices and output volumes exert a positive effect on all miners’ computing power, with a notably stronger effect observed among smaller-scale miners. The cryptocurrency price has a more positive impact on small miners, whereas the volume of cryptocurrency output has a more positive impact on large miners. Although the decrease in cryptocurrency output caused by the deflationary cryptocurrency issuance mechanism inhibits miners’ computing power expansion, the scale of large miners is more stable than that of small miners in a fluctuating cryptocurrency market. Therefore, there is a risk of large miners monopolizing the blockchain.

Keywords: Monopoly on blockchain; Concentration of computing power; Miner scale; Cryptocurrency price; Cryptocurrency output volume (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10755-6

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