The Gap Game

Blockchain-based cryptocurrencies secure a decentralized consensus protocol by incentives. The protocol participants, called miners, generate (mine) a series of blocks, each containing monetary transactions created by system users. As incentive for participation, miners receive newly minted currency and transaction fees paid by transaction creators. Blockchain bandwidth limits lead users to pay increasing fees in order to prioritize their transactions. However, most prior work focused on models where fees are negligible. In a notable exception, Carlsten et al. postulated in CCS'16 that if incentives come only from fees then a mining gap would form~--- miners would avoid mining when the available fees are insufficient. In this work, we analyze cryptocurrency security in realistic settings, taking into account all elements of expenses and rewards. To study when gaps form, we analyze the system as a game we call \emph{the gap game}. We analyze the game with a combination of symbolic and numeric analysis tools in a wide range of scenarios. Our analysis confirms Carlsten et al.'s postulate; indeed, we show that gaps form well before fees are the only incentive, and analyze the implications on security. Perhaps surprisingly, we show that different miners choose different gap sizes to optimize their utility, even when their operating costs are identical. Alarmingly, we see that the system incentivizes large miner coalitions, reducing system decentralization. We describe the required conditions to avoid the incentive misalignment, providing guidelines for future cryptocurrency design

Spartan Daily, May 16, 1939

Volume 27, Issue 137https://scholarworks.sjsu.edu/spartandaily/2927/thumbnail.jp

Cryptocurrency Mining Games with Economic Discount and Decreasing Rewards

In the consensus protocols used in most cryptocurrencies, participants called miners must find valid blocks of transactions and append them to a shared tree-like data structure. Ideally, the rules of the protocol should ensure that miners maximize their gains if they follow a default strategy, which consists on appending blocks only to the longest branch of the tree, called the blockchain. Our goal is to understand under which circumstances are miners encouraged to follow the default strategy. Unfortunately, most of the existing models work with simplified payoff functions, without considering the possibility that rewards decrease over time because of the game rules (like in Bitcoin), nor integrating the fact that a miner naturally prefers to be paid earlier than later (the economic concept of discount). In order to integrate these factors, we consider a more general model where issues such as economic discount and decreasing rewards can be set as parameters of an infinite stochastic game. In this model, we study the limit situation in which a miner does not receive a full reward for a block if it stops being in the blockchain. We show that if rewards are not decreasing, then miners do not have incentives to create new branches, no matter how high their computational power is. On the other hand, when working with decreasing rewards similar to those in Bitcoin, we show that miners have an incentive to create such branches. Nevertheless, this incentive only occurs when a miner controls a proportion of the computational power which is close to half of the computational power of the entire network