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On the profitability of selfish blockchain mining under consideration of ruin

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  • Hansjoerg Albrecher
  • Pierre-Olivier Goffard

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 to analyze the sensitivity with respect to the different model ingredients and to identify conditions under which selfish mining is a strategic advantage.

Suggested Citation

  • Hansjoerg Albrecher & Pierre-Olivier Goffard, 2020. "On the profitability of selfish blockchain mining under consideration of ruin," Papers 2010.12577, arXiv.org.
    • Handle: RePEc:arx:papers:2010.12577
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    References listed on IDEAS

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    1. Pierre-Olivier Goffard, 2019. "Fraud risk assessment within blockchain transactions," Working Papers hal-01716687, HAL.
    2. Asmussen, Soren & Avram, Florin & Usabel, Miguel, 2002. "Erlangian Approximations for Finite-Horizon Ruin Probabilities," ASTIN Bulletin, Cambridge University Press, vol. 32(2), pages 267-281, November.
    3. Avanzi, Benjamin & U. Gerber, Hans & S.W. Shiu, Elias, 2007. "Optimal dividends in the dual model," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 111-123, July.
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