On the shutdown price of blockchain mining machines

The security of PoW-based blockchains relies on the total amount of mining power and the ratio of mining power possessed by the honest miners. Loosely speaking, a system with higher mining power makes an attack more difficult. To incentivise miners joining the network and contributing their mining power, reward mechanisms are designed to provide economic profit to miners in exchange for their mining power. We identify shutdown price of mining machines as an overlooked factor that has an impact on the total mining power in the network, so the level of system security of PoW-based blockchains. We formalise the concept of shutdown price, which represents the break-even point of operating a mining machine. Once the shutdown price of a type of machines is reached, mining coins with them can be more expensive than buying coins directly in the cryptocurrency market. Therefore a rational operator would switch off these machines. This reduces the mining power in the network. However, due to the high market volatility and the coin price may recover from the break-even point quickly, the miners may delay shut down or may choose a partial shutdown strategy to hedge risk. We define and analyse such shutdown tolerance by applying real option theory. We also provide a discussion on the key factors determining shutdown price and their impact on the blockchain security.