Julien Prat (CNRS, CREST, École Polytechnique) – An Equilibrium Model of the Market for Bitcoin Mining

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We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of Bitcoin’s 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. We find that around one third of seigniorage income is dissipated in electricity consumption. The model indicates that a slowing down in the rate of technological progress will significantly increase Bitcoin’s carbonfootprint.

Friday, January 11, 2019, 11:00 a. m.

Oesterreichische Nationalbank
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