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On the profitability of selfish blockchain mining under consideration of ruin

Author

Listed:
  • Hansjörg Albrecher
  • Pierre-Olivier Goffard

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

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.

Suggested Citation

  • Hansjörg Albrecher & Pierre-Olivier Goffard, 2021. "On the profitability of selfish blockchain mining under consideration of ruin," Post-Print hal-02649025, HAL.
    • Handle: RePEc:hal:journl:hal-02649025
    DOI: 10.1287/opre.2021.2169
    Note: View the original document on HAL open archive server: https://hal.science/hal-02649025v3
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    References listed on IDEAS

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    1. 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.
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