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On Reward Sharing in Blockchain Mining Pools

Author

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  • Can, Burak

    (RS: FSE DKE Mathematics Centre Maastricht, Data Analytics and Digitalisation, RS: GSBE other - not theme-related research)

  • Hougaard, Jens Leth
  • Pourpouneh, Mohsen

Abstract

This paper proposes a conceptual framework for the analysis of reward sharing schemes in mining pools, such as those associated with Bitcoin. The framework is centered around the reported shares in a pool instead of agents and results in two new fairness criteria, absolute and relative redistribution. These criteria impose that the addition of a share to the pool affects all previous shares in the same way, either in absolute amount or in relative ratio. We characterize two large classes of economically viable reward sharing schemes corresponding to each of these fairness criteria in turn. We further show that the intersection of these classes brings about a generalization of the well-known proportional scheme, which also leads to a new characterization of the proportional scheme as a corollary.

Suggested Citation

  • Can, Burak & Hougaard, Jens Leth & Pourpouneh, Mohsen, 2021. "On Reward Sharing in Blockchain Mining Pools," Research Memorandum 009, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2021009
    DOI: 10.26481/umagsb.2021009
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    References listed on IDEAS

    as
    1. Chun, Youngsub, 1988. "The proportional solution for rights problems," Mathematical Social Sciences, Elsevier, vol. 15(3), pages 231-246, June.
    2. Lin William Cong & Zhiguo He & Jiasun Li & Wei Jiang, 2021. "Decentralized Mining in Centralized Pools [Concentrating on the fall of the labor share]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1191-1235.
    3. Roger B. Myerson, 1977. "Graphs and Cooperation in Games," Mathematics of Operations Research, INFORMS, vol. 2(3), pages 225-229, August.
    4. Hougaard, Jens Leth & Moreno-Ternero, Juan D. & Tvede, Mich & Østerdal, Lars Peter, 2017. "Sharing the proceeds from a hierarchical venture," Games and Economic Behavior, Elsevier, vol. 102(C), pages 98-110.
    5. Moulin,Hervi, 1991. "Axioms of Cooperative Decision Making," Cambridge Books, Cambridge University Press, number 9780521424585, January.
    6. M. Angeles de Frutos, 1999. "Coalitional manipulations in a bankruptcy problem," Review of Economic Design, Springer;Society for Economic Design, vol. 4(3), pages 255-272.
    7. Bruno Biais & Christophe Bisière & Matthieu Bouvard & Catherine Casamatta, 2019. "The Blockchain Folk Theorem," The Review of Financial Studies, Society for Financial Studies, vol. 32(5), pages 1662-1715.
    8. Jacob D. Leshno & Philipp Strack, 2020. "Bitcoin: An Axiomatic Approach and an Impossibility Theorem," American Economic Review: Insights, American Economic Association, vol. 2(3), pages 269-286, September.
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    Cited by:

    1. José Parra-Moyano & Gregor Reich & Karl Schmedders, 2024. "A Note on the Non-proportionality of Winning Probabilities in Bitcoin," Computational Economics, Springer;Society for Computational Economics, vol. 64(3), pages 1697-1714, September.

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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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