An Economic Analysis of Difficulty Adjustment Algorithms in Proof‐of‐Work Blockchain Systems
Year: 2025
Type: article
Abstract: ABSTRACT We study the stability of cryptocurrency systems through difficulty adjustment. Bitcoin's difficulty adjustment algorithm (DAA) exhibits instability when the reward elasticity of the hash rate is high, implying that a sharp price reduction could disrupt the current Bitcoin system. By contrast, newer DAAs developed and installed for other cryptocurrencies remain stably under substantially weaker conditions; thus, Bitcoin can inherently address this concern by upgrading its DAA. However, miners with high marginal costs profit from the existing DAA's instability and may oppose reforms that are beneficial for users. This finding highlights a critical challenge for the sustainability of cryptocurrencies.
Source: International Economic Review
DOI: 10.1111/iere.70028
Institutions: The University of Tokyo, University of Wisconsin–Madison
Language: English
Subfield: Information Systems
Field: Computer Science
Domain: Physical Sciences
Open Access status: hybrid
Estimated APC paid: $3,570
OpenAlex ID: W4414577023