Risk Aversion and 51% Attack Resistance in Proof-of-Work Cryptocurrencies

Abstract

Cryptocurrency mining is nowadays an intrinsic part of the Blockchain technology as it is fundamental to ensure the safety of this asset class. Nonetheless, the mining activity might be seen as a rational investment choice as it implies in costs -- hardware and electricity -- to have profit in the cryptocurrency operation. In this paper, mining is studied under a mean-variance approach to address the impact of Bitcoin's financial risks in its technological safety. It is found that the hash power of a cryptocurrency decreases according to risk-aversion and volatility. Using Bitcoin data and an ARDL model, the risk aversion of miners is tested. Price increases significantly hash power, and volatility decreases, but it is not statistically significant. The results suggest Bitcoin miners have a low degree of risk aversion and its security is not affected by volatility. Robustness tests confirm this result.

JEL Classification: D43, D85, G23