Dynamic power control for rational cryptocurrency mining

Abstract

In blockchain and cryptocurrency, miners participate in a proof-of-work-based distributed consensus protocol to find and generate a valid block, process transactions, and earn the corresponding reward. Because cryptocurrency is designed to adapt to the dynamic miner network size, a miner's participation affects the block difficulty which sets the expected amount of work to find a valid block. We study the dependency between the mining power control and the block difficulty and study a rational miner utilizing such dependency to dynamically control its mining power over a longer horizon than just the impending block. More specifically, we introduce I-O Mining strategy where a miner takes advantage of the block difficulty adjustment rule and toggles between mining with full power and power off between the difficulty adjustments. In I-O Mining, the miner influences the block difficulty and mines only when the difficulty is low, gaming and violating the design integrity of the mining protocol for its profit gain. We analyze the I-O Mining's incentive/profit gain over the static-mining strategies and its negative impact on the rest of the blockchain mining network in the block/transaction scalability. Our results show that I-O Mining becomes even more effective and profitable as there are greater competitions for mining and the reward and the cost difference becomes smaller, which are the trends in cryptocurrencies.