I am keen to see if there have been any academic papers that have studied the link between bitcoin miners and energy markets, in-particular, if there is a so called ‘no-arbitrage’ requirement, or a hedging strategy for miners, that exists.

Suppose there is a miner, Bob, who’s mining equipment produces a fixed hashrate and is not a part of any mining pool. The decision, whether Bob should mine or not, depends on the following variables (some are random):

  • The spot price of electricity (Random)
  • The spot price of Bitcoin (Random)
  • The network difficulty (Random)
  • The network hashrate (Random)
  • Block reward (Deterministic)
  • Equipment depreciation (Deterministic)
  • Transaction fees (Random)

Bob wishes to ensure that in expectation, mining yields a profit. Of course this depends on these aforementioned variables. Bob also wishes to ensure that if mining isn’t profitable with the spot prices, perhaps there is a way he could still mine, by using energy market or cryptocurrency derivatives to hedge against this.

Or, if it would not be profitable to mine, he could lease his computation as cloud services for a fixed, deterministic rate per given time period, to ensure his machinery isn’t idle. Conversely, he could choose to mine an entirely different cryptocurrency that would yield a profit, of course, in expectation.

My immediate, non-academic “hunch” tells me that there is a link here, or a way to ensure that miners have more certainty when mining, using derivative products to hedge themselves against sudden drops in the price of Bitcoin, or sudden increases in the cost of electricity. And the dynamics would be interesting to study.

I was wondering if there have been any academic papers published, which might deviate from what I have mentioned above, but include some relevant concepts. I have seen other answers on this site that have explored similar questions, seen here. As well as an academic paper on the sustainability of bitcoin mining, seen here.



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