Diversification Across Mining Pools: Optimal Mining Strategies under PoW

Mining is a central operation of all proof-of-work (PoW) based cryptocurrencies. The vast majority of miners today participate in "mining pools" instead of "solo mining" in order to lower risk and achieve a more steady income. However, this rise of participation in mining pools negatively affects the decentralization levels of most cryptocurrencies. In this work, we look into mining pools from the point of view of a miner: We present an analytical model and implement a computational tool that allows miners to optimally distribute their computational power over multiple pools and PoW cryptocurrencies (i.e. build a mining portfolio), taking into account their risk aversion levels. Our tool allows miners to maximize their risk-adjusted earnings by diversifying across multiple mining pools which enhances PoW decentralization. Finally, we run an experiment in Bitcoin historical data and demonstrate that a miner diversifying over multiple pools, as instructed by our model/tool, receives a higher overall Sharpe ratio (i.e. average excess reward over its standard deviation/volatility).Comment: 13 pages, 16 figures. Presented at WEIS 201

MiniLedger: Compact-sized Anonymous and Auditable Distributed Payments

While privacy preserving distributed payment schemes manage to drastically improve user privacy, they come at the cost of generating new regulatory concerns: in a private ledger the transactions cannot be subject to any level of auditing, and thus are not compatible with tracing illegal behaviors. In this work we present MiniLedger, a distributed payment system which not only guarantees the privacy of transactions, but also offers built-in functionalities for various types of audits by any external authority. MiniLedger is the first private and auditable payment system with storage costs independent of the number of transactions. To achieve such a storage improvement, we introduce pruning functionalities for the transaction history while maintaining integrity and auditing. We provide formal security definitions and a number of extensions for various auditing levels. Our evaluation results show that MiniLedger is practical in terms of storage requiring as low as 70KB per participant for 128 bits of security, and depending on the implementation choices, can prune 1 million transactions in less than a second

Base64 Malleability in Practice

Base64 encoding has been a popular method to encode binary data into printable ASCII characters. It is commonly used in several serialization protocols, web, and logging applications, while it is oftentimes the preferred method for human-readable database fields. However, while convenient and with a better compression rate than hex-encoding, the large number of base64 variants in related standards and proposed padding-mode optionality have been proven problematic in terms of security and cross-platform compatibility. This paper addresses a potential attack vector in the base64 decoding phase, where multiple different encodings can successfully decode into the same data, effectively breaking string uniqueness guarantees. The latter might result to log mismatches, denial of service attacks and duplicated database entries, among the others. Apart from documenting why canonicity can be broken by a malleable encoder, we also present an unexpected result, where most of today\u27s base64 decoder libraries are not 100% compatible in their default settings. Some surprising results include the non-compatible behavior of major Rust base64 crates and between popular Javascript and NodeJS base64 implementations. Finally, we propose ways and test vectors for mitigating these issues until a more permanent solution is widely adopted

Proof of Assets in the Diem Blockchain

A great challenge for distributed payment systems is their compliance with regulations, such as anti-money laundering, insolvency legislation, countering the financing of terrorism and sanctions laws. After Bitcoin\u27s MtGox scandal, one of the most needed auditing functionalities for financial solvency and tax reporting purposes is to prove ownership of blockchain reserves, a process known as Proof of Assets (PoA). This work formalizes the PoA requirements in account-based blockchains, focusing on the unique hierarchical account structure of the Diem blockchain, formerly known as Libra. In particular, we take into account some unique features of the Diem infrastructure to consider different PoA modes by exploring time-stamping edge cases, cold wallets, locked assets, spending ability delegation and account pruning, among the others. We also propose practical optimizations to the byte-size of PoA in the presence of light clients who cannot run a full node, including skipping Validator updates, while still maintaining the 66.7% Byzantine fault tolerance (BFT) guarantee

Homomorphic decryption in blockchains via compressed discrete-log lookup tables

Many privacy preserving blockchain and e-voting systems are based on the modified ElGamal scheme that supports homomorphic addition of encrypted values. For practicality reasons though, decryption requires the use of precomputed discrete-log (dlog) lookup tables along with algorithms like Shanks\u27s baby-step giant-step and Pollard\u27s kangaroo. We extend the Shanks approach as it is the most commonly used method in practice due to its determinism and simplicity, by proposing a truncated lookup table strategy to speed up decryption and reduce memory requirements. While there is significant overhead at the precomputation phase, these costs can be parallelized and only paid once and for all. As a starting point, we evaluated our solution against the widely-used secp family of elliptic curves and show that we can achieve storage reduction by 7x-14x, depending on the group size. Our algorithm can be immediately imported to existing works, especially when the range of encrypted values is known, such as in Zether, PGC and Solidus protocols

Broken Proofs of Solvency in Blockchain Custodial Wallets and Exchanges

Since the Mt. Gox Bitcoin exchange collapse in 2014, a number of custodial cryptocurrency wallets offer a form of financial solvency proofs to bolster their users\u27 confidence. We identified that despite recent academic works that highlight potential security and privacy vulnerabilities in popular auditability protocols, a number of high-profile exchanges implement these proofs incorrectly, thus defeating their initial purpose. In this paper we provide an overview of \textit{broken} liability proof systems used in production today and suggest fixes, in the hope of closing the gap between theory and practice. Surprisingly, many of these exploitable attacks are due to a) weak cryptographic operations, for instance SHA1 hashing or hash-output truncation to 8 bytes, b) lack of data binding, such as wrong Merkle tree inputs and misuse of public bulletin boards, and c) lack of user-ID uniqueness guarantees

SoK: Auditability and Accountability in Distributed Payment Systems

Enforcement of policy regulations and availability of auditing mechanisms are crucial building blocks for the adoption of distributed payment systems. This paper reviews a number of existing proposals for distributed payment systems that offer some form of auditability for regulators. We identify two major distinct lines of work: payment systems that are not privacy-preserving such as Bitcoin, where regulation functionalities are typically tailored for organizations controlling many accounts, and privacy-preserving payment systems where regulation functionalities are typically targeted to user level. We provide a systematization methodology over several axes of characteristics and performance, while highlighting insights and research gaps that we have identified, such as lack of dispute-resolution solutions between the regulator and the entity under audit, and the incompatibility of ledger pruning or off-chain protocols with regulatory requirements. Based on our findings, we propose a number of exciting future research directions

Truncator: Time-space Tradeoff of Cryptographic Primitives

We present mining-based techniques to reduce the size of various cryptographic outputs without loss of security. Our approach can be generalized for multiple primitives, such as cryptographic key generation, signing, hashing and encryption schemes, by introducing a brute-forcing step to provers/senders aiming at compressing submitted cryptographic material. Interestingly, mining can result in record-size cryptographic outputs, and we show that 5%-12% shorter hash digests and signatures are practically feasible even with commodity hardware. As a result, our techniques make compressing addresses and transaction signatures possible in order to pay less fees in blockchain applications while decreasing the demand for blockchain space, a major bottleneck for initial syncing, communication and storage. Also, the effects of compressing once - then reuse\u27\u27 at mass scale can be economically profitable in the long run for both the Web2 and Web3 ecosystems. Our paradigm relies on a brute-force search operation in order to craft the primitive\u27s output such that it fits into fewer bytes, while the missing fixed bytes are implied by the system parameters and omitted from the actual communication. While such compression requires computational effort depending on the level of compression, this cost is only paid at the source (i.e. in blockchains, senders are rewarded by lowered transaction fees), and the benefits of the compression are enjoyed by the whole ecosystem. As a starting point, we show how our paradigm applies to some basic primitives commonly used in blockchain applications but also traditional Web2 transactions (such as shorter digital certificates), and show how security is preserved using a bit security framework. Surprisingly, we also identified cases where wise mining strategies require proportionally less effort than naive brute-forcing, shorter hash-based signatures being one of the best examples. We also evaluate our approach for several primitives based on different levels of compression. Our evaluation concretely demonstrates the benefits both in terms of financial cost and storage if adopted by the community, and we showcase how our technique can achieve up to 83.21% reduction in smart contract gas fees at a cost of less than 4 seconds of computation on a single core

SoK: Blockchain Light Clients

Blockchain systems, as append-only ledgers, are typically associated with linearly growing participation costs. Therefore, for a blockchain client to interact with the system (query or submit a transaction), it can either pay these costs by downloading, storing and verifying the blockchain history, or forfeit blockchain security guarantees and place its trust on third party intermediary servers. With this problem becoming apparent from early works in the blockchain space, the concept of a light client has been proposed, where a resource-constrained client such as a browser or mobile device can participate in the system by querying and/or submitting transactions without holding the full blockchain but while still inheriting the blockchain\u27s security guarantees. A plethora of blockchain systems with different light client frameworks and implementations have been proposed, each with different functionalities, assumptions and efficiencies. In this work we provide a systematization of such light client designs. We unify the space by providing a set of definitions on their properties in terms of provided functionality, efficiency and security, and provide future research directions based on our findings