Global Economic Intersection
Advertisement
  • Home
    • 카지노사이트
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
  • Home
    • 카지노사이트
  • Economics
  • Finance
  • Politics
  • Investments
    • Invest in Amazon $250
  • Cryptocurrency
    • Best Bitcoin Accounts
    • Bitcoin Robot
      • Quantum AI
      • Bitcoin Era
      • Bitcoin Aussie System
      • Bitcoin Profit
      • Bitcoin Code
      • eKrona Cryptocurrency
      • Bitcoin Up
      • Bitcoin Prime
      • Yuan Pay Group
      • Immediate Profit
      • BitQH
      • Bitcoin Loophole
      • Crypto Boom
      • Bitcoin Treasure
      • Bitcoin Lucro
      • Bitcoin System
      • Oil Profit
      • The News Spy
      • Bitcoin Buyer
      • Bitcoin Inform
      • Immediate Edge
      • Bitcoin Evolution
      • Cryptohopper
      • Ethereum Trader
      • BitQL
      • Quantum Code
      • Bitcoin Revolution
      • British Trade Platform
      • British Bitcoin Profit
    • Bitcoin Reddit
    • Celebrities
      • Dr. Chris Brown Bitcoin
      • Teeka Tiwari Bitcoin
      • Russell Brand Bitcoin
      • Holly Willoughby Bitcoin
No Result
View All Result
Global Economic Intersection
No Result
View All Result

Bitcoin Mining

admin by admin
November 24, 2014
in Uncategorized
0
0
SHARES
25
VIEWS
Share on FacebookShare on Twitter

by Rod Garratt and Rosa Hayes – Liberty Street Economics, Federal Reserve Bank of New York

In June 2014, the mining pool Ghash.IO briefly controlled more than half of all mining power in the Bitcoin network, awakening fears that it might attempt to manipulate the blockchain, the public record of all Bitcoin transactions. Alarming headlines splattered the blogosphere. But should members of the Bitcoin community be worried?

Blog_Bitcoin_iStock_000039182710_450x331


Miners are members of the Bitcoin community who engage in a process that validates new additions to the blockchain in exchange for a reward that comes in the form of newly issued bitcoins. The process is essentially a tournament, where the likelihood that a miner receives a reward is proportional to the amount of computing power he or she employs. Mining pools are groups of miners that pool their computational resources together and split the rewards. An individual or group of miners that provides more than 50 percent of computational power to the validation process can manipulate the blockchain, but this power is limited by the fact that blockchain is, as mentioned above, a public record; no one can add false transactions to the blockchain.

There are only two manipulations a controlling pool could attempt: refusing to validate specific transactions (which prevents people from sending bitcoins between addresses) or reversing transactions the pool sends during the time it is in control. Such actions would likely lead to a huge decline in the value of bitcoin, if not a complete collapse of the entire system. So would it be worth it for a pool of miners to manipulate the blockchain?

Think of the situation as an infinitely (or indefinitely) repeated game. Is there a one-shot manipulation that will earn the controlling mining pool more than its expected future earnings? If not, then the pool has little incentive to manipulate the blockchain, as doing so would destroy its source of future income. We argue that the incentives for a 51 percent attack are low given the current conditions of the bitcoin market, but that the incentive for such an attack may increase in the future.

The Current Situation

In order to evaluate the costs and benefits of a manipulation one needs to perform a few calculations. The current market price of bitcoin is approximately $400, and twenty-five bitcoins are made available approximately every ten minutes to the miner or pool that solves therequired hash problem. Thus, a group that controls 51 percent of all Bitcoin mining revenue would earn .51*25*6*24*$400 or $734,400 per day.

In calculating mining profit, we assume that all miners want to buy the best mining chips currently available. However, there are a number of reasons why miners may not retire old chips immediately when new, more efficient chips become available, for example, if they believe the difference in efficiency between new and old chips is negligible or if there are delays in shipping new chips. Thus, it is likely miners use an array of chips with different efficiencies, as long as the average efficiency of the mining rig is good enough to be profitable.

The website Tradeblock lists fifty-two mining chips in current or recent use. In calculating the total electricity use of the Bitcoin network, we use the average wattage of the top twenty chips listed on Tradeblock, 0.73 Joules/gigahash (J/GH), to estimate the average wattage of the bitcoin network. The current hash rate of the Bitcoin network is about 250 million gigahashes per second (GH/s), according to Blockchain.info. If all mining is done via an average-wattage 0.73 J/GH chip, then the bitcoin network would draw 182,500 kilowatts, using 4.38 million kWh/day at the current hash rate.

According to a 2012 report from the International Energy Agency, the average price of electricity in the OECD was $0.1109/kWh for industrial energy use and $0.158/kWh for household use. It is unclear what proportion of bitcoin miners are industrial versus individual; however, many bitcoin startups presumably receive industrial energy pricing. Using the simple assumption that half of all electricity used by the Bitcoin network is used by industrial users and half is used by household users, the total electricity cost of the entire Bitcoin network is equal to .5*($0.158/kWh+$0.1109/kWh)*4.38 million kWh/day or $588,891.

The electricity cost for a group controlling 51 percent of all mining power is thus $300,334 per day, so the group’s mining profit is $434,066 a day. If the group discounts its future earnings with discount factor d, the cost of a one-shot manipulation is $434,066*d + $434,066*d2 + $434,066*d3 + … =$434,066*d/(1-d). Therefore, the group’s incentive for throwing away a profit of $434,066 a day will be low unless either the profit from the one-shot manipulation or the group’s discount rate is very high. Low market interest rates and very high profits suggest that a group’s incentive to defect should be low given present market conditions.

Bitcoin Mining in the Future

The monetary rule of the Bitcoin protocol stipulates that the block reward halves every 210,000 blocks, or roughly every four years. The most recent reward halving occurred in 2012, putting the estimated time of the next halving in 2016. When this occurs, mining revenue will decrease by 50 percent per block. All else equal, a group controlling 51 percent of mining power could continue to profit with a reduced block reward. At 12.5 bitcoin per block, the pool’s share of daily revenue will be equal to .51*12.5*6*24*$400 or $367,200. This exceeds the estimated electricity cost per day of $300,334, so the group will continue to have a positive profit ($66,866 per day). Although the cost of a one-shot manipulation will have decreased by nearly 85 percent, it is unlikely that there exists a manipulation that would make defection profitable in the near term. Of course, this conclusion might change at future dates when the reward is halved yet again.

As the block reward decreases, some Bitcoin users argue thattransaction fees will make up for the revenue miners currently earn as the block reward. Transaction fees are optional bitcoin-denominated fees that users can attach to their transactions in order to speed processing time; the miner that wins the block reward also receives the transaction fees included in the block. According to Blockchain.info, transaction fees currently make up about 0.34 percent of miner’s revenue. However, even if users begin to attach larger transaction fees to their bitcoin purchases once block-reward revenue drops below electricity costs, the majority of users will have little incentive to pay transaction fees in excess of the electricity cost of processing their transaction. In this case, the cost of a defection will be fairly low and possibly profitable for a group that controls 51 percent of mining power.

Another issue to consider is free entry. Given the positive profits of existing miners, there is belief that more miners will enter the market. An increase in the number of miners will cause the hash rate of the bitcoin network to increase, as more mining rigs are simultaneously employed to solve hashes. As long as the value of the block reward remains constant, the entry of new miners should cause per-person profits to fall to zero, or at least below the value of a one-shot deviation. If this occurs, a mining group controlling 51 percent of computing power will have a larger economic incentive to manipulate the blockchain.

What about improvements in mining technology? Might this improve the profitability of mining and mitigate the threat of a 51 percent attack? No. The protocol adjusts so that coins are released at the same rate regardless of the aggregate hash rate. In other words, the size of the pie miners compete over stays the same when a new technology emerges. The only thing that might change, temporarily, is the way it is sliced. There can be a shift in how profits are distributed towards early adopters. But ultimately all miners will be forced to adopt the new technology and no one will have an advantage. The situation is a standard prisoner’s dilemma.

Suppose there are two miners, Alice and Bob, who both currently use the same type of chip. Each miner controls the same proportion of total mining power, and thus has an equal chance of winning the block-reward, R. Now imagine that a new chip becomes available, with the same wattage as preexisting chips, but a hash rate that is 50 percent faster and costs C. If either Alice or Bob uses the fast processor and the other uses the slow processor, then the person with the fast processor will have a 60 percent chance of winning the reward and the person who uses the slow processor will have a 40 percent chance of winning the reward. The situation can be summarized by the following normal form game.

Table

In each box, the payoffs shown are for Alice and Bob, respectively, if the action pair is as shown in the row/column headings. If the increase in revenue from switching from a slow chip to a fast chip is greater than the increased cost of the fast chip (that is, if 0.1R>C), then Fast is a dominant strategy for each player. The result is that both players buy the fast chip and earn the same revenue as before the new chip was introduced. So the introduction of the new chip makes both players worse off. The point is that because of the way the protocol works, faster chips do not increase aggregate profits, and because of strategic incentives, miners are forced to adopt costly, but nonbeneficial technologies. Innovations in mining technology are something that miners as a whole would prefer to do without.

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Source: http://libertystreeteconomics.newyorkfed.org/2014/11/bitcoin-how-likely-is-a-51-percent-attack.html#.VHMlM4vF9K4


About the Authors

Garratt_rodney Rod Garratt is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Rosa_Hayes Rosa Hayes is a senior research analyst in the Group.

Previous Post

Earnings and Economic Reports: Week Starting 24 November

Next Post

October 2014 CFNAI Super Index’s Significant Backward Revision Moves the 3 Month Moving Average Into Negative Territory

Related Posts

Unlocking the Future: Google's Game-Changing Move to Advertise NFT Games Starting September 15th
Business

Unlocking the Future: Google’s Game-Changing Move to Advertise NFT Games Starting September 15th

by John Wanguba
September 8, 2023
Bitcoin Is Finally Trading Perfectly Like 'Digital Gold'
Economics

Bitcoin Is Finally Trading Perfectly Like ‘Digital Gold’

by John Wanguba
August 5, 2023
Can Worldcoin Overtake Bitcoin?
Economics

Can Worldcoin Overtake Bitcoin?

by John Wanguba
August 4, 2023
Bitcoin Is Steady Above $29,000 Awaiting US NFP Figures
Economics

Bitcoin Is Steady Above $29,000 Awaiting US NFP Figures

by John Wanguba
August 4, 2023
Namibia Will Regulate And Not Ban Crypto With New Law
Finance

Namibia Will Regulate And Not Ban Crypto With New Law

by John Wanguba
July 25, 2023
Next Post

October 2014 CFNAI Super Index's Significant Backward Revision Moves the 3 Month Moving Average Into Negative Territory

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Browse by Tags

adoption altcoins bank banking banks Binance Bitcoin Bitcoin market blockchain BTC BTC price business China crypto crypto adoption cryptocurrency crypto exchange crypto market crypto regulation decentralized finance DeFi Elon Musk ETH Ethereum Europe Federal Reserve finance FTX inflation investment market analysis Metaverse NFT nonfungible tokens oil market price analysis recession regulation Russia stock market technology Tesla the UK the US Twitter

Archives

  • September 2023
  • August 2023
  • July 2023
  • June 2023
  • May 2023
  • April 2023
  • March 2023
  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • August 2010
  • August 2009

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized
Global Economic Intersection

After nearly 11 years of 24/7/365 operation, Global Economic Intersection co-founders Steven Hansen and John Lounsbury are retiring. The new owner, a global media company in London, is in the process of completing the set-up of Global Economic Intersection files in their system and publishing platform. The official website ownership transfer took place on 24 August.

Categories

  • Business
  • Econ Intersect News
  • Economics
  • Finance
  • Politics
  • Uncategorized

Recent Posts

  • Unlocking the Future: Google’s Game-Changing Move to Advertise NFT Games Starting September 15th
  • Bitcoin Is Finally Trading Perfectly Like ‘Digital Gold’
  • Can Worldcoin Overtake Bitcoin?

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.

No Result
View All Result
  • Home
  • Contact Us
  • Bitcoin Robot
    • Bitcoin Profit
    • Bitcoin Code
    • Quantum AI
    • eKrona Cryptocurrency
    • Bitcoin Up
    • Bitcoin Prime
    • Yuan Pay Group
    • Immediate Profit
    • BitIQ
    • Bitcoin Loophole
    • Crypto Boom
    • Bitcoin Era
    • Bitcoin Treasure
    • Bitcoin Lucro
    • Bitcoin System
    • Oil Profit
    • The News Spy
    • British Bitcoin Profit
    • Bitcoin Trader
  • Bitcoin Reddit

© Copyright 2021 EconIntersect - Economic news, analysis and opinion.