How Resilient is the Bitcoin Protocol ?

Abstract

We propose a parsimonious homogenous framework for analyzing the production industry of Bitcoin. Despite a constant growth environment, the revenue per hashrate unit follows a mean reverting process. Empirically, our model fits the data well. We quantify the stability and the strength of the bitcoin transactional system which is the public good created by the Bitcoin protocol. Shocks can have a lasting effect in the medium run, but in the long run the mining equilibrium, and therefore the Blockchain security, is shown to be highly resilient even in extreme scenarios.

Keywords: Blockchain,Bitcoin,Proof-of-Work,Protocol Resilience,Mining Hardware

JEL Classification: C51,D41,L10