Bitcoin Mining Decentralization via Cost Analysis
This addresses the issue of mining centralization for Bitcoin users and developers, but it is incremental as it builds on existing formal models by adding new cost conditions.
The paper tackles the problem of Bitcoin mining centralization by analyzing cost factors like off-peak power pricing and investment strategies, revealing that alternative models can enable profitable or net-zero mining at smaller, more decentralized scales.
Bitcoin mining presents a significant economic incentive for efficient hashing and broadcast of data, both parameters stemming from the Proofs of Work used to advance the network. This incentive has led to the development of Bitcoin specific application specific integrated circuits and centralized mining pools, undermining the decentralized motivations behind Bitcoin's design. In addition, the imminent block reward halving threatens the profitability of mining at any scale. Some work has been done in formal models for miner profitability, but existing models do not account for conditions such as the pricing of off-peak power and diverse investment strategies regarding sunken costs. There is also a lack of formal study of how the profit model changes as mining scales from the individual to the industrial level. Given the lack of analysis of these conditions, there are alternative models for profitable or net zero mining that operate at smaller, and therefore more desirable, scale.