The Bitcoin mining games

Nicolas Houy

No 1412, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: When processing transactions in a block, a miner increases his reward but also decreases his probability to earn any reward because the time needed for his block to reach consensus depends on its size. We show that this leads to a game situation between miners. We analytically solve this game for two miners. Then, we show that miners do not play a Nash equilibrium in the current Bitcoin mining environment, instead, they should not process any transaction. Finally, we show that the situation where no transaction is ever processed would stop being a Nash equilibrium if the transaction fee was multiplied or, equivalently, the fixed reward divided by a factor of about 12.

Keywords: Bitcoin; mining; crypto-currency; game (search for similar items in EconPapers)
JEL-codes: C72 D62 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (9)

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Working Paper: The Bitcoin mining games (2014)
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