A discrete-event simulation model for the Bitcoin blockchain network with strategic miners and mining pool managers

As the first and most famous cryptocurrency-based blockchain technology, Bitcoin has attracted tremendous attention from both academic and industrial communities in the past decade. A Bitcoin network is comprised of two interactive parties: individual miners and mining pool managers, each of which strives to maximize its own utility. In particular, individual miners choose which mining pool to join and decide on how much mining power to commit under limited constraints on the mining budget and mining power capacity; managers of mining pools determine how to allocate the mining reward and how to adjust the membership fee. In this work we investigate the miners' and mining pool managers' decisions in repeated Bitcoin mining competitions by building a Monte-Carlo discrete-event simulation model. Our simulation model (i) captures the behavior of these two parties and how their decisions affect each other, and (ii) characterizes the system-level dynamics of the blockchain in terms of the mining difficulty level and total mining power. In addition, we study the sensitivity of system performance metrics with respect to various control parameters. Our analysis may provide useful guidelines to mining activity participants in the Bitcoin network.