Paper 2020/1574

Analysing Mining Machine Shutdown Price

Shange Fu and Jiangshan Yu and Rafael Dowsley and Joseph Liu

Abstract

The security of PoW-based blockchain relies on the total amount of mining power and the ratio of mining power possessed by the honest miners. Loosely speaking, a system with higher mining power makes an attack more difficult. To incentivise miners joining the network and contributing their mining power, reward mechanisms are designed to provide economic profit to miners in exchange for their mining power. We identify shutdown price of mining machines as an overlooked factor that has an impact on the total amount of mining power, so the level of system security of PoW-based blockchains. This work fills this knowledge gap. We formalise the concept of shutdown price, which represents the break-even point of operating a mining machine. Once the shutdown price of a type of mining machines is reached, mining coins by using such machines is more expensive than buying coins directly in the cryptocurrency market. Therefore a rational operator would shut these machines down. This reduces the mining power in the network. However, as the variance of the coin price can be very high and the coin price may recover from the break-even point within a short time interval, the miners may not shut down the break-even triggered machine immediately or choose a partial shutdown strategy to hedge risk. We define and analyse such shutdown tolerance by applying real option theory. We reveal that shutdown price can be influenced by several factors, including the halving event and electricity price. Attacks requiring a particular percentage of mining power, such as 51% attacks, can take this into account and explicitly incorporate the diminished mining power as a part of their strategy, which will reduce the difficulty of launching such attacks.

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