Proof-of-Work Cryptocurrencies: Does Mining Technology Undermine Decentralization?

【Author】 Capponi, Agostino; Olafsson, Sveinn; Alsabah, Humoud

【Source】MANAGEMENT SCIENCE

【影响因子】6.172

【Abstract】Does the proof-of-work consensus protocol serve its intended purpose of supporting decentralized cryptocurrency mining? To address this question, we develop a game theoretical model in which miners first invest in hardware to improve the efficiency of their operations and then compete for mining rewards in a rent-seeking game. We show that centralization grows with heterogeneity in mining costs, but hardware capacity constraints prevent the most efficient miners from monopolizing the mining process. Investment leads to a more decentralized network unless larger miners have a significant comparative advantage in acquiring new hardware. Our model generates empirically supported implications: (i) mining centralization is countercyclical with respect to mining reward, and (ii) a change in mining reward leads to a less-than-proportional change in hash rates.

【Keywords】finance; management; research and development; industrial organization; firm objectives; organization and behavior

【发表时间】2023 2023 AUG 8

【收录时间】2023-09-03

【文献类型】

【主题类别】

--