A Rational Mining Strategy for Proof-of-Work Consensus Algorithms

Abstract

To maintain a secured, universal state of a blockchain, Proof-of-Work consensus algorithms economically incentivize miners to compete for block creation through hashing-based challenge solving. Nowadays, the default mining strategy consists in including as many transactions as possible in a block so as to maximize the block reward. Unfortunately, this strategy also maximizes the risk of block orphaning. In this work, we propose a rational mining strategy that carefully balances the trade-off between the block reward and the risk of block orphaning. The strategy is designed so that the chance to get a block reward is higher than the default strategy chance. Furthermore, the strategy is flexible as it provides a degree of freedom of how much larger this chance should be. We analytically study the long-term economic advantage of the proposed approach and derive the condition under which the long-term reward is higher than the one of the default strategy. Finally, we validate the proposed strategy based on a case study analysis method against Bitcoin and Ethereum and show that the higher the risk of block orphaning the more convenient the strategy happens to be.