On the profitability of selfish blockchain mining under consideration of ruin

Hansjörg Albrecher , Pierre-Olivier Goffard (1)

1 SAF - Laboratoire de Sciences Actuarielle et Financière

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 us to analyze the sensitivity with respect to the different model components and to identify conditions under which selfish mining is a strategic advantage.

Mots clés: Blockchain; miner; cryptocurrency; ruin theory; dual risk model

Domaines: Probabilités [math.PR]; Gestion des risques [q-fin.RM]

Hansjörg Albrecher, Pierre-Olivier Goffard. On the profitability of selfish blockchain mining under consideration of ruin. 2021. ⟨hal-02649025v2⟩