Review: Prof Dimitri’s Bitcoin Mining as a Contest

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”grid” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css=”.vc_custom_1463146108811{padding-bottom: 20px !important;}”][vc_column offset=”vc_col-lg-offset-1 vc_col-lg-10 vc_col-md-offset-1 vc_col-md-10″][vc_column_text][dropcaps type=’normal’ font_size=’45’ color=’#191919′ background_color=” border_color=”]L[/dropcaps]edger Journal has just released a paper titled Bitcoin Mining as a Contest by Dr. Nicola Dimitri, Professor of Economics, University of Siena.¬†Life Member of Clare Hall College (Cambridge-UK), and Visiting Professor at the Institute for Advanced Studies (IMT) Lucca (Italy)

Bitcoin Mining as a Contest

 

In laymen terms, the idea that the paper proposes is that solving the blocks in order to receive Bitcoins is essentially equivalent to an arms race with a catch.

The author points to the complete/perfect information variant of Nash equilibrium that individual or pool miners face when trying to mine for Bitcoins. Caught in a type of Nash Equilibrium [Yong Lin’s commentary: recall prisoner’s dilemma that you have learned in undergrad economics]. As they try to compete between compete against each other.

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Asymmetric information

Interestingly, Prof Dimitri had assumed that both parties accessed perfect information. In an otherwise/normally asymmetric information scenario. Although it might have been mentioned that it is an assumption. The author and readers are aware that this is not simply an assumption but is what is happening at the moment from the many sources we could source information from.

The miners know what others are doing because of the open-source nature of Bitcoin. Thus, miners are able to adjust the expectations simply by visiting blockchain explorers in order to find out what is the current net hash blockchain explorers. This act allows for complete information. Dimitri (2017) explains that given the presence complete information. Miners were able to find out each other marginal cost mine a single block.[/vc_column_text][vc_separator type=”normal”][/vc_column][/vc_row][vc_row row_type=”parallax” parallax_content_width=”in_grid” text_align=”center” background_image=”66″ full_screen_section_height=”no”][vc_column][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”177″][icons icon_pack=”font_elegant” fe_icon=”icon_quotations” size=”fa-lg” type=”square” custom_size=”45″ custom_shape_size=”40″ border_radius=”100″ border=”yes” target=”_self” icon_color=”#ffffff” icon_hover_color=”#141212″ background_color=”rgba(255,255,255,0.01)” hover_background_color=”#ffffff” border_color=”#ffffff” border_width=”1″][vc_separator type=”transparent” thickness=”0″ up=”0″ down=”35″][vc_column_text]

Dr. Dimitri is a figure of influence in the field. He presented The Bitcoin Mining Game at The Future of Bitcoin 2017 conference which was held at Arnhem, Netherlands.

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Key proposition

The key point of this paper: Professor Dimitri proved and explained that, the unique of the Bitcoin blockchain. Allows for both miners to be able so has a positive expected profit. Even though the Micro-foundation explanation had proved that they were involved in a Nash equilibrium.

This paper shared the “monopoly-proof” function of the blockchain framework (Dimitri, 2017). And leveraged on the role that a reduction of asymmetric information played within the Bitcoin blockchain framework. The author concluded by acknowledging that there were several assumptions such as not knowing transactions costs. The conclusion of the paper was clear. Miners that engage in a race to the bottom will have a certain amount of mining profitability be affected. This is an awesome piece of paper, readers can download and read the full journal paper here [https://ledgerjournal.org/ojs/index.php/ledger/article/view/96/67]. I will be bringing more of such scholarly journal articles and break them down into smaller chunks.

PS: All mistakes factual, interpretation, academic, or grammatical are my own.

References
Dimitri, N. (2017). Bitcoin Mining as a Contest. Ledger, 2. doi:https://doi.org/10.5195/ledger.2017.96[/vc_column_text][/vc_column][/vc_row]