Abstract
Does Bitcoin's proof-of-work (PoW) protocol serve its intended purpose of enabling and supporting a decentralized payment system? To address this question, we develop a game theoretical model where firms invest in research and development (R&D) before competing in a Bitcoin mining game. We show that firms fail to capture the surplus created from their research, because higher research expenditures induce a more aggressive mining game. Promoting R&D spillovers not only reduces wasteful R&D duplication and increases firms' profits, but may also raise the security of the Bitcoin system. We calibrate our model to rewards and operational costs of the Bitcoin system, and quantitatively demonstrate that the mining industry has a tendency towards centralization, against the core principles of cryptocurrencies.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
