Tullock Contest: A Model of Proof-of-Work Mining in Cryptocurrencies
21 Pages Posted: 15 Apr 2020 Last revised: 28 Apr 2020
Date Written: April 28, 2020
This paper presents an N-player Tullock contest where players purchases shares in a lottery at a fixed common cost. Once all players have purchased their shares, a common value reward is raffled off. The model has some similarities to all-pay auctions, however the assignment mechanism differs. This difference ensures that, unlike all-pay auctions, the N-player Tullock contest has an unique pure strategy Nash equilibrium.
This article presents also a new kind of Tullock contest that integrates the main mechanism behind proof-of-work mining of cryptocurrencies such as Bitcoin. The application of the model is expanded to analyze some topics of proof-of-work protocols, such as concentration of hashing power, double-spending attacks and environmental externalities.
Keywords: Blockchain, Cryptocurrencies, Bitcoin
JEL Classification: D43, E42, G29
Suggested Citation: Suggested Citation