Towards Proof-of-Work Cryptocurrency Valuation: Mining Games, Network Effects and the Social Value of Blockchain

by Osiris Team

Posted on April 10, 2019, 3:56 p.m.
Analytics Research
Time to read: 2 min

Osiris researchers have developed first-of-a-kind valuation model for PoW coins.

In this study, a mathematical model of proof-of-work cryptocurrency valuation is developed based on the concepts of simultaneous equilibria in two mining games, the purchasing power parity in the system of equations of exchange and the network effects of transaction cost optimisation in the economy where agents utilise both conventional and digital currencies to process payments. The model lays the foundation for rigorous long-term proof-of-work cryptocurrency valuation superior to existing approaches that are solely based on variations of Metcalfe’s law or costs of mining. Based on the model, the long-term Bitcoin equilibrium price conditional on current block size limit is $106, while if the block size limit is abandoned, the conditional equilibrium price is $6725. Network hashrate is consistent with the no-limit scenario, while the transaction fees are consistent with the status quo, revealing an important source of uncertainty on the market. The developed framework is also applied to the measure the net social value of proof-of-work cryptocurrencies, and Bitcoin long-term social value of equilibrium is shown to be positive at $126,200 per block. The comparison of equilibrium and optimal cases shows that external intervention is not necessary to guarantee socially beneficial outcomes.

Available at SSRN: View

Related links:
Available at SSRN
Like and comment it on:

More cryptocurrency news

Latest news

Bakkt reveals imminent Bitcoin futures launch date after receiving regulatory approval

The long-awaited and highly anticipated Bitcoin futures platform Bakkt says it has received regulatory approval and is ready for launch.

Development Regulatory

Aug. 17, 2019, 12:09 p.m.

New money-laundering rules change everything for cryptocurrency exchanges

Complying with regulators could mean the difference between going mainstream and remaining forever on the margins of the global financial system.


Aug. 16, 2019, 10:40 a.m.

Cardano Foundation supports global educational programmes focused on Blockchain security

Cardano recognises the importance of education to drive the adoption of the Blockchain technology


Aug. 16, 2019, 10:33 a.m.

Samsung’s cryptocurrency wallet adds Bitcoin support

Samsung’s cryptocurrency wallet, the Blockchain Keystore, has added support for the flagship cryptocurrency Bitcoin according to updated information on the South Korean giant’s website.

Adoption Development

Aug. 15, 2019, 11:14 a.m.

Barclays is no longer banking cryptocurrency exchange Coinbase

Barclays is no longer providing banking services to cryptocurrency exchange Coinbase, sources familiar with the matter told Reuters, ending a relationship that started in March last year as the exchange expanded in Europe.

Alerts Development

Aug. 14, 2019, 10:46 a.m.

Follow us