An Equilibrium Model of the Market for Bitcoin Mining
CESifo, Munich, 2018
CESifo Working Paper No. 6865
We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of the Bitcoin network. We show that free entry places an upper-bound on mining revenues and we devise a structural framework to measure its value. Calibrating the model’s parameters allows us to accurately forecast the evolution of the network computing power over time. We establish the accuracy of the model through out-of-sample tests and investigation of the entry rule.
Economics of Digitization
Industrial Organisation