Seminar by Maarten van Oordt (Bank of Canada) 

Title: Why Fixed Costs Matter for Proof-of-Work Based Cryptocurrencies (joint work with Rod Garratt) 

Abstract: This paper assesses how the cost structure of cryptocurrency mining affects the response of miners to exchange rate fluctuations and the immutability of cryptocurrency ledgers that rely on proof-of-work. The results suggest that the amount of mining power supplied to currencies  that rely on application-specific integrated circuits (ASICs), such as Bitcoin, responds less to adverse exchange rate shocks than other currencies, a fact that may be instrumental to avoiding double-spending attacks. The results may change if mining equipment used for a particular cryptocurrency can be transferred over to another. For smaller currencies with low exchange rate correlation, transferability can eliminate the protection that fixed costs provide. Our results have important implications for what type of cryptocurrencies could be more successful in the long-run.