An Equilibrium Model of the Market for Bitcoin Mining

29 Pages Posted: 20 Mar 2018

See all articles by Julien Prat

Julien Prat

University of Vienna; IZA Institute of Labor Economics

Benjamin Walter

University of Paris-Saclay

Date Written: February 05, 2018

Abstract

We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of the Bitcoin network. We show that free entry places an upper-bound on mining revenues and we devise a structural framework to measure its value. Calibrating the model’s parameters allows us to accurately forecast the evolution of the network computing power over time. We establish the accuracy of the model through out-of-sample tests and investigation of the entry rule.

Keywords: Bitcoin, blockchain, miners, industry dynamics

JEL Classification: D410, L100

Suggested Citation

Prat, Julien and Walter, Benjamin, An Equilibrium Model of the Market for Bitcoin Mining (February 05, 2018). CESifo Working Paper Series No. 6865, Available at SSRN: https://ssrn.com/abstract=3143410

Julien Prat (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna 1210, Vienna
Austria

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Benjamin Walter

University of Paris-Saclay

France

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