Hashpower allocation in Pay-per-Share blockchain mining pools

TL;DR

This paper analyzes how miners should allocate their computational resources among different mining pools under a Pay-per-Share reward system, considering risk transfer and management fees, to optimize their mining strategies.

Contribution

It introduces a simplified wealth model to study miners' resource allocation decisions in PPS pools, highlighting the impact of share difficulty and fees on miner behavior.

Findings

Miners' optimal resource allocation depends on risk transfer and fee structure.

Adjusting share difficulty influences miners' expected returns and risk exposure.

Management fees significantly affect miners' strategic choices.

Abstract

Mining blocks in a blockchain using the \textit{Proof-of-Work} consensus protocol involves significant risk, as network participants face continuous operational costs while earning infrequent capital gains upon successfully mining a block. A common risk mitigation strategy is to join a mining pool, which combines the computing resources of multiple miners to provide a more stable income. This article examines a Pay-per-Share (PPS) reward system, where the pool manager can adjust both the share difficulty and the management fee. Using a simplified wealth model for miners, we explore how miners should allocate their computing resources among different mining pools, considering the trade-off between risk transfer to the manager and management fees.