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The Bitcoin mining games

Author

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  • Nicolas Houy

    () (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

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.

Suggested Citation

  • Nicolas Houy, 2014. "The Bitcoin mining games," Working Papers 1412, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
  • Handle: RePEc:gat:wpaper:1412
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    File URL: ftp://ftp.gate.cnrs.fr/RePEc/2014/1412.pdf
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    1. repec:hur:ijarbs:v:7:y:2017:i:12:p:809-820 is not listed on IDEAS

    More about this item

    Keywords

    Bitcoin; mining; crypto-currency; game;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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