Bitcoin has become the most popular cryptocurrency based on a peer-to-peer network. In Aug. 2017, Bitcoin was split into the original Bitcoin (BTC) and Bitcoin Cash (BCH). Since then, miners have had a choice between BTC and BCH mining because they have compatible proof-of-work algorithms. Therefore, they can freely choose which coin to mine for higher profit, where the profitability depends on both the coin price and mining difficulty. Some miners can immediately switch the coin to mine only when mining difficulty changes because the difficulty changes are more predictable than that for the coin price, and we call this behavior fickle mining. In this paper, we study the effects of fickle mining by modeling a game between two coins. To do this, we consider both fickle miners and some factions (e.g., BITMAIN for BCH mining) that stick to mining one coin to maintain that chain. In this model, we show that fickle mining leads to a Nash equilibrium in which only a faction sticking to its coin mining remains as a loyal miner to the less valued coin (e.g., BCH), where loyal miners refer to those who conduct mining even after coin mining difficulty increases. This situation would cause severe centralization, weakening the security of the coin system. To determine which equilibrium the competing coin systems (e.g., BTC vs. BCH) are moving toward, we traced the historical changes of mining power for BTC and BCH and found that BCH often lacked loyal miners until Nov. 13, 2017, when the difficulty adjustment algorithm of BCH mining was changed. However, the change in the difficulty adjustment algorithm of BCH mining led to a state close to the stable coexistence of BTC and BCH. We also demonstrate that the lack of BCH loyal miners may still be reached when a fraction of miners automatically and repeatedly switch to the most profitable coin to mine (i.e., automatic mining). According to our analysis, as of Dec. 2018, loyal miners to BCH would leave if more than about 5% of the total mining capacity for BTC and BCH has engaged in the automatic mining. In addition, we analyze the recent “hash war” between Bitcoin ABC and SV, which confirms our theoretical analysis. Finally, we note that our results can be applied to any competing cryptocurrency systems in which the same hardware (e.g., ASICs or GPUs) can be used for mining. Therefore, our study brings new and important angles in competitive coin markets: a coin can intentionally weaken the security and decentralization level of the other rival coin when mining hardware is shared between them, allowing for automatic mining.
- Data mining,
Bitcoin  is the most popular cryptocurrency based on a distributed and public digital ledger called a blockchain. Nodes in the Bitcoin network store the blockchain, where transactions are recorded in a unit of a block, and the blockchain is extended by generating new blocks. The process of generating new blocks is referred to as mining, and nodes conducting mining activities are referred to as miners. To successfully mine, miners should find a solution called the proof-of-work(PoW) . In Bitcoin, miners are required to solve a cryptographic puzzle finding a hash value to satisfy specific conditions such as a certain number of leading zeroes. To solve a puzzle, miners spend their computational power, and the miner who finds the solution obtains 12.5 coins and the transaction fees in the new block as a reward. In addition, Bitcoin has an average block interval of 10 minutes by adjusting the mining difficulty (i.e., the difficulty of the puzzles).
As Bitcoin has gained popularity, the transaction scalability issue has risen, and several solutions have been proposed to address the issue. However, there were also several conflicts over these solutions. As a result, in Aug. 2017, the Bitcoin system was split into the original Bitcoin (BTC) and Bitcoin Cash (BCH) , . The key idea of BCH is to increase the maximum block size to process more transactions than BTC. However, even with different block size limits, they have compatible proof-of-work mechanisms with each other. Therefore, miners can freely alternate between BTC and BCH mining to boost their profits . The mining profitability changes when the mining difficulty and coin price change, but some miners may be concerned only with the change in former because it is relatively easier to predict the former than the latter. More precisely, rational miners can decide which cryptocurrency is better to mine depending on the coin mining difficulty — BCH mining would be conducted by the miner only if the BCH mining difficulty is low compared to the BTC mining difficulty; otherwise, the miner does BTC mining rather than BCH mining. We call this miner’s behavior “fickle mining” in this paper. Note that the fickle miner may change the coin to mine at a specific time period whenever the coin mining difficulty changes. Thus, fickle mining leads to instability of mining power, which may eventually cause unstable coin prices .
In this study, we modeled and analyzed the game between two coins for fickle mining, and our results imply that fickle mining can lead to a lack of loyal miners in the less valued coin system. We confirm that this lack of loyal miners can weaken the overall health of coin systems by analyzing real-world history. In addition, our analysis is extended to the analysis of automatic mining, which shows a potentially severe risk of automatic mining. As of Dec. 2018, BCH’s loyal miners would leave if more than about 5% of the total mining power in BTC and BCH is involved in automatic mining. Moreover, we explained how one coin can steal the loyal miners from other less valued rivalry coins in the highly competitive coin market by generalizing our game model. We believe that this is one of the serious threats for a cryptocurrency system using a PoW mechanism.
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FULL Paper PDF file:Bitcoin vs. Bitcoin Cash: Coexistence or Downfall of Bitcoin Cash?
Coexistence or Downfall of Bitcoin Cash?
2019 IEEE Symposium on Security and Privacy (SP), San Francisco, CA, USA, 2019, pp. 935-951
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