Crypto Mining Data: Nature and Inferences

Abstract

Using raw blockchain data from Ethereum from 2019 through 2023, the authors examine the current effective state of crypto and, specifically, the data validation process, known as mining. Focusing on the proof-of-work (POW) versus proof-of-stake (POS) models within different periods of evolution within Ethereum, the authors estimate different mining models’ respective impacts. They document that the recent switch in the Ethereum mining from POW to POS led to a more democratic mining process, resulting in stronger decentralization. The authors also find that a small minority of miners control the majority of mining revenues in both POW and POS systems, which is consistent with a recent study. However, the authors show that the revenues are directly proportional to the miners’ mining efforts and not due to centralization. They also show that the switch to POS has also drastically reduced the mining revenues for many miners, forcing several of the previously prominent miners out of business. Examining the mining data, the authors look for and do not find any overt evidence of manipulation by miners. The research benefits crypto ecosystem participants as well as regulators and traditional financial institutions seeking to understand crypto promises.