A Note on the Non-Proportionality of Winning Probabilities in Bitcoin
18 Pages Posted: 17 Jun 2019 Last revised: 19 Feb 2021
Date Written: October 1, 2020
It is widely assumed that the selection process in a blockchain is based on proportional winning probabilities. The reliability and security of any blockchain is based upon this assumption. However, making an analogy between the Bitcoin protocol and the classical statistical urn problem, we argue that, at least on a theoretical level, the selection process in several blockchains is based on nonproportional winning probabilities. This reveals a misconception regarding the incentive structure of many blockchain protocols. We develop an empirical approach to testing for nonproportional winning probabilities in any blockchain, and offer a solution to this problem.
Keywords: Bitcoin, Blockchain, Choice Models
JEL Classification: C25, C44
Suggested Citation: Suggested Citation