Tullock Contest: A Model of Proof-of-Work Mining in Cryptocurrencies

21 Pages Posted: 15 Apr 2020 Last revised: 28 Apr 2020

See all articles by Jorge Soria

Jorge Soria

University of Helsinki - Helsinki Graduate School of Economics

Date Written: April 28, 2020

Abstract

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

Soria, Jorge, Tullock Contest: A Model of Proof-of-Work Mining in Cryptocurrencies (April 28, 2020). Available at SSRN: https://ssrn.com/abstract=3561146 or http://dx.doi.org/10.2139/ssrn.3561146

Jorge Soria (Contact Author)

University of Helsinki - Helsinki Graduate School of Economics ( email )

P.O. Box 17 (Arkadiankatu 7)
Helsinki, FI00014
Finland

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