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Proceedings ArticleDOI

Profit Maximization for Bitcoin Pool Mining: A Prospect Theoretic Approach

TL;DR: This paper uses prospect theory to predict the profit that a specific miner, given his hash rate power and electricity costs, is expected to make from each pool, and shows how the utility values from a pool varies with electricity fee and dollar equivalent of a Bitcoin.
Abstract: It is predicted that cryptocurrencies will play an important role in the global economy. Therefore, it is prudent for us to understand the importance and monetary value of such cryptocurrencies, and strategize our investments accordingly. One of the ways to obtain cryptocurrency is via mining. As solo mining is not possible because of the computational requirements, pool mining has gained popularity. In this paper, we focus on Bitcoin and its pools. With more than 20 pools in the network of Bitcoin and other cryptocurrencies, it becomes challenging for a new miner to decide the pool he must join such that the profit is maximized. We use prospect theory to predict the profit that a specific miner, given his hash rate power and electricity costs, is expected to make from each pool. A utility value is calculated for each pool based on its recent performance, hash rate power, total number of the pool members, reward distribution policy of the pool, electricity fee in the new miner's region, pool fee, and the current Bitcoin value. Then, based on these parameters during a certain time duration, the most profitable pool is found for that miner. We show how the utility values from a pool varies with electricity fee and dollar equivalent of a Bitcoin. To find the accuracy of our predictions, we mine Bitcoin by joining 5 different pools- AntPool, F2Pool, BTC.com, Slushl'ool, and BatPool. Using an Antminer 55 for each pool, we mine Bitcoin for 40 consecutive days. Results reveal that our prospect theoretic predictions are consistent with what we actually mine; however predictions using expected utility theory are not as close.
Citations
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Journal ArticleDOI
TL;DR: In this study, price prediction is performed with two machine learning methods, namely linear regression (LR) and support vector machine (SVM) by using a time series consisting of daily ether cryptocurrency closing prices.

119 citations

Journal ArticleDOI
TL;DR: The proposed mechanism realizes improving the mining utility in mining networks while ensuring the maximum profit of edge cloud operator under the proposed mechanism, mining networks obtain 6.86% more profits on average.
Abstract: Blockchain technology is developing rapidly and has been applied in various aspects, among which there are broad prospects in Internet of Things (IoT). However, IoT mobile devices are restricted in communication and computation due to mobility and portability, so that they can’t afford the high computing cost for blockchain mining process. To solve it, the free resources displayed on non-mining-devices and edge cloud are selected to construct collaborative mining network(CMN) to execute mining tasks for mobile blockchain. Miners can offload their mining tasks to non-mining-devices within a CMN or the edge cloud when there are insufficient resources. Considering competition for resource of non-mining-devices, resource allocation problem in a CMN is formulated as a double auction game, among which Bayes-Nash Equilibrium (BNE) is analyzed to figure out the optimal auction price. When offloading to edge cloud, Stackelberg game is adopted to model interactions between edge cloud operator and different CMNs to obtain the optimal resource price and devices’ resource demands. The mechanism realizes improving the mining utility in mining networks while ensuring the maximum profit of edge cloud operator. Finally, profits of mining networks are compared with an existing mode which only considers offloading to edge cloud. Under the proposed mechanism, mining networks obtain 6.86% more profits on average.

109 citations


Cites background from "Profit Maximization for Bitcoin Poo..."

  • ...[21] presented a prospect theoretic approach for profit maximization in bitcoin pool mining....

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Posted Content
TL;DR: This article discusses and surveys the various blockchain based consensus methods that are applicable to resource constrained IoT devices and networks, and explores the possibility of utilizing them to realize a blockchain based IoT network.
Abstract: The success of blockchain as the underlying technology for cryptocurrencies has opened up possibilities for its use in other application domains as well. The main advantages of blockchain for its potential use in other domains are its inherent security mechanisms and immunity to different attacks. A blockchain relies on a consensus method for agreeing on any new data. Most of the consensus methods which are currently used for the blockchain of different cryptocurrencies require high computational power and thus are not apt for resource-constrained systems. In this article, we discuss and survey the various blockchain based consensus methods that are applicable to resource constrained IoT devices and networks. A typical IoT network consists of several devices which have limited computational and communications capabilities. Most often, these devices cannot perform intensive computations and are starved for bandwidth. Therefore, we discuss the possible measures that can be taken to reduce the computational power and convergence time for the underlying consensus methods. We also talk about some of the alternatives to the public blockchain like private blockchain and tangle, along with their potential adoption for IoT networks. Furthermore, we review the existing consensus methods that have been implemented and explore the possibility of utilizing them to realize a blockchain based IoT network. Some of the open research challenges are also put forward.

73 citations


Cites background from "Profit Maximization for Bitcoin Poo..."

  • ...If its output is less than the target value, the miner will accept it as a valid block and withdraw all of his effort for solving that block and move on to find the next block [6]....

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  • ...randomly to reach the target value [6]....

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  • ...of nodes ought to be compromised for a successful attack [6]....

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Journal ArticleDOI
20 Apr 2020
TL;DR: This article surveys the various blockchain-based consensus methods that are applicable to resource-constrained IoT devices and networks, and discusses the possible measures that can be taken to reduce the computational power and convergence time for the underlying consensus methods.
Abstract: The success of blockchain as the underlying technology for cryptocurrencies has opened up possibilities for its use in other application domains as well. The main advantages of blockchain for its potential use in other areas are its inherent security mechanisms and immunity to data manipulation attacks. A blockchain relies on a consensus method for agreeing on any new data. Most of the consensus methods which are currently used for the blockchain of different cryptocurrencies require high computational power and thus are not suitable for resource-constrained systems. In this article, we survey the various blockchain-based consensus methods that are applicable to resource-constrained IoT devices and networks. In a typical IoT network, there exist several devices with limited computational and communication capabilities. Most often, these devices cannot perform intensive computations and are starved for bandwidth. Therefore, we discuss the possible measures that can be taken to reduce the computational power and convergence time for the underlying consensus methods. We also talk about some of the alternatives to the public blockchain, such as private blockchain and tangle, along with their potential adoption for IoT networks. Furthermore, we review the existing consensus methods that have been implemented and explore the possibility of utilizing them to realize a blockchain-based IoT network. Some of the open research challenges including AI-enabled blockchains are also put forward.

49 citations

Journal ArticleDOI
TL;DR: A dynamic game model of the bitcoin market, where miners or players use mining systems to mine bitcoin by investing electricity into the mining system, and three concepts of dynamic game theoretic solutions are proposed.
Abstract: Blockchain and cryptocurrency are a hot topic in today’s digital world. In this paper, we create a game theoretic model in continuous time. We consider a dynamic game model of the bitcoin market, where miners or players use mining systems to mine bitcoin by investing electricity into the mining system. Although this work is motivated by BTC, the work presented can be applicable to other mining systems similar to BTC. We propose three concepts of dynamic game theoretic solutions to the model: Social optimum, Nash equilibrium and myopic Nash equilibrium. Using the model that a player represents a single “miner” or a “mining pool”, we develop novel and interesting results for the cryptocurrency world.

39 citations


Cites background from "Profit Maximization for Bitcoin Poo..."

  • ...Salimitari discussed the mining profitability of a new miner or pool by calculating the expected value of profit [24]....

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References
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Journal ArticleDOI
TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
Abstract: We develop a new version of prospect theory that employs cumulative rather than separable decision weights and extends the theory in several respects. This version, called cumulative prospect theory, applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses. Two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting functions. A review of the experimental evidence and the results of a new experiment confirm a distinctive fourfold pattern of risk attitudes: risk aversion for gains and risk seeking for losses of high probability; risk seeking for gains and risk aversion for losses of low probability. Expected utility theory reigned for several decades as the dominant normative and descriptive model of decision making under uncertainty, but it has come under serious question in recent years. There is now general agreement that the theory does not provide an adequate description of individual choice: a substantial body of evidence shows that decision makers systematically violate its basic tenets. Many alternative models have been proposed in response to this empirical challenge (for reviews, see Camerer, 1989; Fishburn, 1988; Machina, 1987). Some time ago we presented a model of choice, called prospect theory, which explained the major violations of expected utility theory in choices between risky prospects with a small number of outcomes (Kahneman and Tversky, 1979; Tversky and Kahneman, 1986). The key elements of this theory are 1) a value function that is concave for gains, convex for losses, and steeper for losses than for gains,

13,433 citations

Journal ArticleDOI
TL;DR: This survey unroll and structure the manyfold results and research directions of Bitcoin, and deduce the fundamental structures and insights at the core of the Bitcoin protocol and its applications.
Abstract: Besides attracting a billion dollar economy, Bitcoin revolutionized the field of digital currencies and influenced many adjacent areas. This also induced significant scientific interest. In this survey, we unroll and structure the manyfold results and research directions. We start by introducing the Bitcoin protocol and its building blocks. From there we continue to explore the design space by discussing existing contributions and results. In the process, we deduce the fundamental structures and insights at the core of the Bitcoin protocol and its applications. As we show and discuss, many key ideas are likewise applicable in various other fields, so that their impact reaches far beyond Bitcoin itself.

1,193 citations

Proceedings ArticleDOI
Ittay Eyal1
17 May 2015
TL;DR: This work defines and analyzes a game where pools use some of their participants to infiltrate other pools and perform such an attack, and studies the special cases where either two pools or any number of identical pools play the game and the rest of the participants are uninvolved.
Abstract: An open distributed system can be secured by requiring participants to present proof of work and rewarding them for participation. The Bit coin digital currency introduced this mechanism, which is adopted by almost all contemporary digital currencies and related services. A natural process leads participants of such systems to form pools, where members aggregate their power and share the rewards. Experience with Bit coin shows that the largest pools are often open, allowing anyone to join. It has long been known that a member can sabotage an open pool by seemingly joining it but never sharing its proofs of work. The pool shares its revenue with the attacker, and so each of its participants earns less. We define and analyze a game where pools use some of their participants to infiltrate other pools and perform such an attack. With any number of pools, no-pool-attacks is not a Nash equilibrium. We study the special cases where either two pools or any number of identical pools play the game and the rest of the participants are uninvolved. In both of these cases there exists an equilibrium that constitutes a tragedy of the commons where the participating pools attack one another and earn less than they would have if none had attacked. For two pools, the decision whether or not to attack is the miner's dilemma, an instance of the iterative prisoner's dilemma. The game is played daily by the active Bit coin pools, which apparently choose not to attack. If this balance breaks, the revenue of open pools might diminish, making them unattractive to participants.

326 citations

Posted Content
Ittay Eyal1
TL;DR: In this article, the authors define and analyze a game where pools use some of their participants to infiltrate other pools and perform such an attack and show that no-pool attacks are not a Nash equilibrium.
Abstract: An open distributed system can be secured by requiring participants to present proof of work and rewarding them for participation. The Bitcoin digital currency introduced this mechanism, which is adopted by almost all contemporary digital currencies and related services. A natural process leads participants of such systems to form pools, where members aggregate their power and share the rewards. Experience with Bitcoin shows that the largest pools are often open, allowing anyone to join. It has long been known that a member can sabotage an open pool by seemingly joining it but never sharing its proofs of work. The pool shares its revenue with the attacker, and so each of its participants earns less. We define and analyze a game where pools use some of their participants to infiltrate other pools and perform such an attack. With any number of pools, no-pool-attacks is not a Nash equilibrium. With two pools, or any number of identical pools, there exists an equilibrium that constitutes a tragedy of the commons where the pools attack one another and all earn less than they would have if none had attacked. For two pools, the decision whether or not to attack is the miner's dilemma, an instance of the iterative prisoner's dilemma. The game is played daily by the active Bitcoin pools, which apparently choose not to attack. If this balance breaks, the revenue of open pools might diminish, making them unattractive to participants.

298 citations