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The economics of Bitcoin mining...Build a mathematical model of this phenomenon and solve for the equilibrium state...?
...Here is why it is interesting. A key assumption in Bitcoin’s design is that no one entity will control more than 50% of the computational power devoted to mining. But if it is cheaper for me to mine than for you, it seems to me my logical course of action is to scale up my mining operation until it is just barely profitable for me… Thus making it unprofitable for you. The stable state might be one entity controlling not 50% of the mining power, but 100% of the mining power. Lowest-cost Bitcoin producer wins? Show that any system like Bitcoin does (or does not) reach such an equilibrium state.
For extra credit, include some stochastic model for the price of electricity in Bitcoins, the probability that a SHA-256 break is discovered, and so forth.
...Here is why it is interesting. A key assumption in Bitcoin’s design is that no one entity will control more than 50% of the computational power devoted to mining. But if it is cheaper for me to mine than for you, it seems to me my logical course of action is to scale up my mining operation until it is just barely profitable for me… Thus making it unprofitable for you. The stable state might be one entity controlling not 50% of the mining power, but 100% of the mining power. Lowest-cost Bitcoin producer wins? Show that any system like Bitcoin does (or does not) reach such an equilibrium state.
For extra credit, include some stochastic model for the price of electricity in Bitcoins, the probability that a SHA-256 break is discovered, and so forth.
