The key innovation of Bitcoin is the development of an electronic version of cash, enabled by its “block chain” technology. The block chain is a decentralized public ledger of all past transactions in the network and has the potential to revolutionize payments systems and beyond.

Bitcoin mining is the process used to secure the block chain, and is a competition between users in the network to solve a cryptographic puzzle. While Bitcoin mining is essential to the enforcement of the block chain, its market structure is poorly understood. This paper aims to fill this gap in the literature.

Bitcoin mining is modelled as an extensive game of which every stage is an independent strategic Poisson race. It is shown that with a fixed number of miners, there exists a unique and stable subgame perfect equilibrium to the game that maintains the target puzzle solution time prescribed by Bitcoin protocol on average. Introducing free entry into the model changes the Nash equilibrium strategy at each stage of the game, and results in a new long run equilibrium.