A core-based quota allocation model for the Bitcoin-refunded Blockchain network

Abstract

Bitcoin operates in a Blockchain network under which a group of participants are responsible for adding new blocks to the chain. The participants are called miners and the ones who successfully add a block to the network are rewarded. As technology evolves over the years, the “mining” process has become more challenging, with miners facing longer periods of negative cash flow while still having expenses. This business architecture has driven away participants, jeopardizing its operation and hindering its progression. To solve this problem, an alternative to provide financial sustainability for miners is to join a mining pool whose main objective is to mitigate cash flow shortages by sharing the rewards obtained by the group, which in turn will be more constant. In this work, we propose a reward sharing methodology for mining pools based on the least-core of a stochastic cooperative game. A risk-averse value functional based on the Conditional Value-at-Risk (CVaR) is used to characterize the game’s certainty equivalent. Two numerical experiments were conducted in this work: (i) one based on a small, illustrative network; and (ii) one derived from real data of the Bitcoin-refunded Blockchain network. The focus of the experiment is on the incremental value of the proposed methodology over using intuitive allocations (uniform and based on computational power) and to what extent the relative increase in the chance of mining by participating as group benefits the stability of the pool. Finally, we deliberate and numerically analyze a nested procedure derived from the proposed least-core-based allocation seeking increased “fairness” in sharing the pool rewards.