To Mine or Not to Mine? The Bitcoin Mining Paradox

25 Pages Posted: 22 May 2020

See all articles by Rostislav Haliplii

Rostislav Haliplii

Université Paris I Panthéon-Sorbonne

Dominique Guegan

Université Paris I Panthéon-Sorbonne

Marius Frunza

Schwarzthal Tech; Schwarzthal Kapital

Date Written: April 23, 2020

Abstract

The aim of this paper is to study the profitability of Bitcoin mining, using the real options theory. The main factors driving the marginal Bitcoin mining profitability are the Bitcoin price, the hash-rate, the predictability of mining difficulty and the hardware efficiency. We propose a real options model that simulates the fundamental mining reward and measures the likelihood of break-even on initial investment and explores also the relationship between the Bitcoin price and the mining difficulty in different economic cycles. Some of our findings questions the rationality of miner’s decisions and attempts to measure their impact on the economics of Bitcoin. Our results show that after the 2017 bubble Bitcoin, miners had an irrational behavior and did not adjust their strategy based on the price levels.

Keywords: Bitcoin Mining, Difficulty Modelling, Real Option Theory

JEL Classification: C02

Suggested Citation

Haliplii, Rostislav and Guegan, Dominique and Frunza, Marius, To Mine or Not to Mine? The Bitcoin Mining Paradox (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3583515 or http://dx.doi.org/10.2139/ssrn.3583515

Rostislav Haliplii

Université Paris I Panthéon-Sorbonne ( email )

France

Dominique Guegan

Université Paris I Panthéon-Sorbonne ( email )

106 avenue de lhopital
75634 Paris Cedex 13
Paris, IL
France

Marius Frunza (Contact Author)

Schwarzthal Tech ( email )

231b Business design Center
Upper Street
London, London N1 0QH
United Kingdom

HOME PAGE: http://www.schwarzthal.tech

Schwarzthal Kapital ( email )

34 quai de Dion Bouton
La Defense Puteaux, 92800
France

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