We argue that the concentrated production and ownership of Bitcoin mining hardware arise naturally from the economic incentives of Bitcoin mining. We model Bitcoin mining as a two-stage competition; miners compete in prices to sell hardware while competing in quantities for mining rewards. We characterize equilibria in our model and show that small asymmetries in operational costs result in highly concentrated ownership of mining equipment. We further show that production of mining equipment will be dominated by the miner with the most efficient hardware, who will sell hardware to competitors while possibly also using it to mine.
|Original language||English (US)|
|Number of pages||17|
|State||Published - Jul 2022|
Bibliographical noteFunding Information:
History: Accepted by Kay Giesecke, finance. Funding: For S. M. Weinberg, funding was supported by an NSF CAREER Award [NSF CCF-1942497].
Copyright: © 2022 INFORMS
- game theory and bargaining theory
- proof of work