2019/05/12 by Panagiotis Chatzigiannis, Chatzigiannis, Panagiotis, Foteini Baldimtsi +5
Computer Science · #Blockchain Technology Applications and Security #Computational Engineering #FOS: Computer and information sciences #Finance #and Science (cs.CE)
paper · pdf · doi:10.48550/arxiv.1905.04624
openalex publication_date 2019/05/12 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
Mining is a central operation of all proof-of-work (PoW) based cryptocurrencies. The vast majority of miners today participate in "mining pools" instead of "solo mining" in order to lower risk and achieve a more steady income. However, this rise of participation in mining pools negatively affects the decentralization levels of most cryptocurrencies. In this work, we look into mining pools from the point of view of a miner: We present an analytical model and implement a computational tool that allows miners to optimally distribute their computational power over multiple pools and PoW cryptocurrencies (i.e. build a mining portfolio), taking into account their risk aversion levels. Our tool allows miners to maximize their risk-adjusted earnings by diversifying across multiple mining pools which enhances PoW decentralization. Finally, we run an experiment in Bitcoin historical data and demonstrate that a miner diversifying over multiple pools, as instructed by our model/tool, receives a higher overall Sharpe ratio (i.e. average excess reward over its standard deviation/volatility).