QP-2018-03

Profitability of the coin-hopping strategy

Tamás Király, Lilla Lomoschitz



Abstract

In the world of cryptocurrencies, new currencies are often created by forking existing ones and changing some of the rules. When the cryptographic hash function used in mining is left unchanged, miners may effortlessly switch between the two blockchains. If there are enough loyal miners on both chains, then the miners who always switch to the more profitable chain can achieve higher profit while the average profit of miners decreases. We study the profitability of this coin-hopping strategy as a function of the hashpower of the coin-hoppers compared to the loyal miners. Our simulations suggest that maximum profit is achieved at a relatively low hashpower ($12\%$ of the total). Interestingly, this optimal coin-hopping hashpower does not depend much on the difference of hashpower between the loyal miners on the two chains. However, the asymmetry of the two chains significantly impacts the profit of loyal miners. Somewhat counterintuitively, those on the weaker chain earn more profit than those on the stronger chain if the difference is not too large.


Bibtex entry:

@techreport{egresqp-18-03,
AUTHOR = {Kir{\'a}ly, Tam{\'a}s and Lomoschitz, Lilla},
TITLE = {Profitability of the coin-hopping strategy},
NOTE= {{\tt www.cs.elte.hu/egres}},
INSTITUTION = {Egerv{\'a}ry Research Group, Budapest},
YEAR = {2018},
NUMBER = {QP-2018-03}
}


Last modification: 29.12.2019. Please email your comments to Tamás Király!