Equilibrium Instability and Self-Correction Mechanism of Pow Blockchain Network

This paper uses a partial equilibrium framework to analyze PoW blockchain network and proves that in the short-term, network hashrate shock affects average miner income through both transaction fee income and block reward income. Using Bitcoin blockchain data, we show that miner average transaction fee income goes in the opposite direction to network hashrate shock while miner average block reward income goes in the same direction as the shock. This implies the coexistence of a positive and negative feedback loop between network hashrate and miner income. As block reward diminishes, PoW blockchain networks should become more stable and resilient to exogenous hashrate shocks