An Equilibrium Model of the Market for Bitcoin Mining
29 Pages Posted: 20 Mar 2018
Date Written: February 05, 2018
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: Suggested Citation