Concluding Remarks

Bitcoin has resolved the economic problem of developing an electronic version of cash. While Bitcoin itself is not accessible to the ordinary person, its technological innovation has the potential to revolutionize payments systems. Electronic cash has the advantage of zero transaction costs while simultaneously possessing the ability to be used for both small and large payments. Thus, a government certified version of electronic cash has the potential for significant welfare gains, particularly in developing countries where micro-payments and remittances are currently hindered by transaction fees.
The function of Bitcoin as electronic cash is dependent on the process of Bitcoin mining, the market structure of which is poorly understood. This paper has attempted to fill this gap by modeling the process of Bitcoin mining as an extensive strategic Poisson race between miners. We have shown that there exists a unique and stable subgame perfect equilibrium to the game that maintains the target puzzle solution time as prescribed by Bitcoin protocol.