On the profitability of selfish blockchain mining under consideration of ruin

Hansjörg Albrecher () and Pierre-Olivier Goffard ()
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Pierre-Olivier Goffard: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon

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Abstract: Mining blocks on a blockchain equipped with a proof of work consensus protocol is well-known to be resource-consuming. A miner bears the operational cost, mainly electricity consumption and IT gear, of mining, and is compensated by a capital gain when a block is discovered. This paper aims at quantifying the profitability of mining when the possible event of ruin is also considered. This is done by formulating a tractable stochastic model and using tools from applied probability and analysis, including the explicit solution of a certain type of advanced functional differential equation. The expected profit at a future time point is determined for the situation when the miner follows the protocol as well as when he/she withholds blocks. The obtained explicit expressions allow us to analyze the sensitivity with respect to the different model components and to identify conditions under which selfish mining is a strategic advantage.

Keywords: Blockchain; miner; cryptocurrency; ruin theory; dual risk model (search for similar items in EconPapers)
Date: 2021-11-29
Note: View the original document on HAL open archive server: https://hal.science/hal-02649025v3
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Published in Operations Research, 2021, ⟨10.1287/opre.2021.2169⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02649025

DOI: 10.1287/opre.2021.2169

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