The Economics of Bitcoin Mining, or Bitcoin in the Presence of Adversaries
The Twelfth Workshop on the Economics of Information Security (WEIS 2013), (June 2013)Abstract
The Bitcoin digital currency depends for its correctness and stability
on a combination of cryptography, distributed algorithms, and incentive-
driven behavior. We examine Bitcoin as a consensus game and deter-
mine that it relies on separate consensus about the rules and about game
state. An important aspect of Bitcoin's design is the mining mechanism,
in which participants expend resources on solving computational puzzles
in order to collect rewards. This mechanism purportedly protects Bitcoin
against certain technical problems such as inconsistencies in the system's
distributed log data structure. We consider the economics of Bitcoin min-
ing, and whether the Bitcoin protocol can survive attacks, assuming that
participants behave according to their incentives. We show that there is
a Nash equilibrium in which all players behave consistently with Bitcoin's
reference implementation, along with in nitely many equilibria in which
they behave otherwise. We also show how a motivated adversary might
be able to disrupt the Bitcoin system and \crash" the currency. Finally,
we argue that Bitcoin will require the emergence of governance structures,
contrary to the commonly held view in the Bitcoin community that the
currency is ungovernable.