Joshua Kroll – The Economics of Bitcoin Mining, or Bitcoin in the Presence of Adversaries

CITP Luncheon Series

Date: Thursday, November 14, 2013
Location: 306 Sherrerd Hall
Streaming Live:
Food and discussion begins at 12:30 pm. Everyone invited.

The Bitcoin digital currency depends on a combination of cryptography, distributed algorithms, and incentive-driven behavior to maintain its correctness and stability. We examine Bitcoin as a consensus game and determine that it relies on a separate consensus about the rules and about game state. An important aspect of Bitcoin’s design is the mining mechanism, in which participants expend resources on solving computational puzzles in order to collect rewards. This mechanism purportedly protects Bitcoin against certain technical problems such as inconsistencies in the system’s distributed log data structure. We consider the economics of Bitcoin mining, and whether the Bitcoin protocol can survive attacks, assuming that participants behave according to their incentives. We show that there is a Nash equilibrium in which all players behave consistently with Bitcoin’s reference implementation, along with infinitely many equilibria in which they behave otherwise. We also show how a motivated adversary might be able to disrupt the Bitcoin system and “crash” the currency. Finally, we argue that Bitcoin will require the emergence of governance structures, contrary to the commonly held view in the Bitcoin community that the currency is ungovernable.


Joshua A. Kroll is a Ph.D. candidate in Computer Science at the Center for Information Technology Policy at Princeton University, where he is advised by Edward W. Felten and Andrew W. Appel. His research spans computer security, privacy, and the interplay between technology and public policy. He received the National Science Foundation Graduate Research Fellowship in 2011.