Equilibrium of Blockchain Miners with Dynamic Asset Allocation
Abstract
We model and analyze blockchain miners who seek to maximize the compound return of their mining businesses. The analysis of the optimal strategies finds a new equilibrium point among the miners and the mining pools, which predicts the market share of each miner or mining pool. The cost of mining determines the share of each miner or mining pool at equilibrium. We conclude that neither miners nor mining pools who seek to maximize their compound return will have a financial incentive to occupy more than 50% of the hash rate if the cost of mining is at the same level for all. However, if there is an outstandingly cost-efficient miner, then the market share of this miner may exceed 50% in the equilibrium, which can threaten the viability of the entire ecosystem.
Type
Venue
2nd Conference on Blockchain Research & Applications for Innovative Networks and Services (BRAINS 2020), 227–231
Authors
Associate Professor
Aron Laszka is an Associate Professor in the College of Information Sciences and Technology at the Pennsylvania State University. Previously, he was an Assistant Professor at the University of Houston, a Research Assistant Professor at Vanderbilt University, and a Postdoctoral Scholar at the University of California, Berkeley.
His research interests revolve around artificial intelligence and cyber-physical systems, focusing on machine learning for decision making and optimization, with applications in smart and connected communities, critical infrastructure, and cybersecurity.
His research is funded by the National Science Foundation, the Department of Energy, the Department of Transportation, and other agencies.