On the profitability of selfish blockchain mining under consideration of ruin
This addresses the economic viability and strategic decision-making for blockchain miners, particularly in assessing risks like ruin, but is incremental as it builds on existing models of selfish mining.
The paper tackles the problem of quantifying blockchain mining profitability when considering the risk of ruin, using a stochastic model to determine expected future profit for both protocol-compliant and selfish mining strategies, and identifies conditions where selfish mining becomes advantageous.
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 to analyze the sensitivity with respect to the different model ingredients and to identify conditions under which selfish mining is a strategic advantage.