Blockchain Papers

Mitri Kitti

No abstract is available for this record.

Mohammad Hossein Manshaei, Murtuza Jadliwala, Anindya Maiti, Mahdi Fooladgar

Low transaction throughput and poor scalability are significant issues in public blockchain consensus protocols such as Bitcoins. Recent research efforts in this direction have proposed shard-based consensus protocols where the key idea is to split the transactions among multiple committees (or shards), which then process these shards or set of transactions in parallel. Such a parallel processing of disjoint sets of transactions or shards by multiple committees significantly improves the overall scalability and transaction throughout of the system. However, one significant research gap is a lack of understanding of the strategic behavior of rational processors within committees in such shard-based consensus protocols. Such an understanding is critical for designing appropriate incentives that will foster cooperation within committees and prevent free-riding. In this paper, we address this research gap by analyzing the behavior of processors using a game-theoretic model, where each processor aims at maximizing its reward at a minimum cost of participating in the protocol. We first analyze the Nash equilibria in an N-player static game model of the sharding protocol. We show that depending on the reward sharing approach employed, processors can potentially increase their payoff by unilaterally behaving in a defective fashion, thus resulting in a social dilemma. In order to overcome this social dilemma, we propose a novel incentive-compatible reward sharing mechanism to promote cooperation among processors. Our numerical results show that achieving a majority of cooperating processors (required to ensure a healthy state of the blockchain network) is easier to achieve with the proposed incentive-compatible reward sharing mechanism than with other reward sharing mechanisms.

George Bissias, Brian Neil Levine, David Thibodeau

Abrupt changes in the miner hash rate applied to a proof-of-work (PoW) blockchain can adversely affect user experience and security. Because different PoW blockchains often share hashing algorithms, miners face a complex choice in deciding how to allocate their hash power among chains. We present an economic model that leverages Modern Portfolio Theory to predict a miner's allocation over time using price data and inferred risk tolerance. The model matches actual allocations with mean absolute error within 20% for four out of the top five miners active on both Bitcoin (BTC) and Bitcoin Cash (BCH) blockchains. A model of aggregate allocation across those four miners shows excellent agreement in magnitude with the actual aggregate as well a correlation coefficient of 0.649. The accuracy of the aggregate allocation model is also sufficient to explain major historical changes in inter-block time (IBT) for BCH. Because estimates of miner risk are not time-dependent and our model is otherwise price-driven, we are able to use it to anticipate the effect of a major price shock on hash allocation and IBT in the BCH blockchain. Using a Monte Carlo simulation, we show that, despite mitigation by the new difficulty adjustment algorithm, a price drop of 50% could increase the IBT by 50% for at least a day, with a peak delay of 100%.

Cristina Pérez‐Solà, Sergi Delgado-Segura, Guillermo Navarro‐Arribas, Jordi Herrera‐Joancomartí

Unspent Transaction Outputs (UTXOs) are the internal mechanism used in many cryptocurrencies to represent coins. Such representation has some clear benefits, but also entails some complexities that, if not properly handled, may leave the system in an inefficient state. Specifically, inefficiencies arise when wallets (the software responsible for transferring coins between parties) do not manage UTXOs properly when performing payments. In this paper, we study three cryptocurrencies: Bitcoin, Bitcoin Cash and Litecoin, by analysing the state of their UTXO sets, that is, the status of their sets of spendable coins. These three cryptocurrencies are the top-3 UTXO-based cryptocurrencies by market capitalization. Our analysis shows that the usage of each cryptocurrency presents some differences, and led to different results. Furthermore, it also points out that the management of the transactions has not always been performed efficiently and therefore, the current state of the UTXO sets is far from ideal.

Shaun Azzopardi, Gordon J. Pace, Fernando Schapachnik

Smart contracts have been proposed as executable implementations enforcing real-life contracts. Unfortunately, the semantic gap between these allows for the smart contract to diverge from its intended deontic behaviour. In this paper we show how a deontic contract can be used for real-time monitoring of smart contracts specifically and request-based interactive systems in general, allowing for the identification of any violations. The deontic logic of actions we present takes into account the possibility of action failure (which we can observe in smart contracts), allowing us to consider novel monitorable semantics for deontic norms. For example, taking a rights-based view of permissions allows us to detect the violation of a permission when a permitted action is not allowed to succeed. A case study is presented showing this approach in action for Ethereum smart contracts.

Christopher D. Clack, Gabriel Vanca

Implementing smart contracts to automate the performance of high-value over-the-counter (OTC) financial derivatives is a formidable challenge. Due to the regulatory framework and the scale of financial risk if a contract were to go wrong, the performance of these contracts must be enforceable in law and there is an absolute requirement that the smart contract will be faithful to the intentions of the parties as expressed in the original legal documentation. Formal methods provide an attractive route for validation and assurance, and here we present early results from an investigation of the semantics of industry-standard legal documentation for OTC derivatives. We explain the need for a formal representation that combines temporal, deontic and operational aspects, and focus on the requirements for the temporal aspects as derived from the legal text. The relevance of this work extends beyond OTC derivatives and is applicable to understanding the temporal semantics of a wide range of legal documentation.

Craig Calcaterra

No abstract is available for this record.

Carlos Molina-Jiménez, Ellis Solaiman, Ioannis Sfyrakis, Irene C. L. Ng · 5 authors

In this paper we discuss how conventional business contracts can be converted into smart contracts---their electronic equivalents that can be used to systematically monitor and enforce contractual rights, obligations and prohibitions at run time. We explain that emerging blockchain technology is certainly a promising platform for implementing smart contracts but argue that there is a large class of applications, where blockchain is inadequate due to performance, scalability, and consistency requirements, and also due to language expressiveness and cost issues that are hard to solve. We explain that in some situations a centralised approach that does not rely on blockchain is a better alternative due to its simplicity, scalability, and performance. We suggest that in applications where decentralisation and transparency are essential, developers can advantageously combine the two approaches into hybrid solutions where some operations are enforced by enforcers deployed on--blockchains and the rest by enforcers deployed on trusted third parties.

Sukrit Kalra, Seep Goel, Mohan Dhawan, Subodh Sharma

A smart contract is hard to patch for bugs once it is deployed, irrespective of the money it holds. A recent bug caused losses worth around $50 million of cryptocurrency. We present ZEUS-a framework to verify the correctness and validate the fairness of smart contracts. We consider correctness as adherence to safe programming practices, while fairness is adherence to agreed upon higher-level business logic. ZEUS leverages both abstract interpretation and symbolic model checking, along with the power of constrained horn clauses to quickly verify contracts for safety. We have built a prototype of ZEUS for Ethereum and Fabric blockchain platforms, and evaluated it with over 22.4K smart contracts. Our evaluation indicates that about 94.6% of contracts (containing cryptocurrency worth more than $0.5 billion) are vulnerable. ZEUS is sound with zero false negatives and has a low false positive rate, with an order of magnitude improvement in analysis time as compared to prior art.

Sergei Tikhomirov

No abstract is available for this record.

Nicola Atzei, Massimo Bartoletti, Tiziana Cimoli, Stefano Lande · 5 authors

Albeit the primary usage of Bitcoin is to exchange currency, its blockchain and consensus mechanism can also be exploited to securely execute some forms of smart contracts. These are agreements among mutually distrusting parties, which can be automatically enforced without resorting to a trusted intermediary. Over the last few years a variety of smart contracts for Bitcoin have been proposed, both by the academic community and by that of developers. However, the heterogeneity in their treatment, the informal (often incomplete or imprecise) descriptions, and the use of poorly documented Bitcoin features, pose obstacles to the research. In this paper we present a comprehensive survey of smart contracts on Bitcoin, in a uniform framework. Our treatment is based on a new formal specification language for smart contracts, which also helps us to highlight some subtleties in existing informal descriptions, making a step towards automatic verification. We discuss some obstacles to the diffusion of smart contracts on Bitcoin, and we identify the most promising open research challenges.

June Ma, Joshua S. Gans, Rabee Tourky

We analyze the Bitcoin protocol for electronic peer-to-peer payments and the operations that support the "blockchain" that underpins it. It is shown that that protocol maps formally into a dynamic game that is an extension of standard models of R&D racing. The model provides a technical foundation for any economic analysis of 'proof of work' protocols. Using the model, we demonstrate that free entry is solely responsible for determining resource usage by the system for a given reward to mining. The endogenous level of computational difficulty built into the Bitcoin protocol does not mitigate this usage and serves only to determine the time taken to process transactions. Regulating market structure will mitigate resource use highlighting the importance of identifying the benefits of competition for the operation of the blockchain.

Kose John, Maureen O’Hara, Fahad Saleh

At their essence, blockchains are digital sequences of numbers coded into computer software that permit the secure exchange, recording, and broadcasting of transactions between individual users operating anywhere in the world with Internet access. Like most technological changes, the development of blockchains drew on and combined several existing technologies. Blockchains incorporate digital encryption technologies that mask, to varying degrees, the specific content exchanged as well as the identities of individual users. Algorithms, pre-coded series of step-by-step instructions, are also mobilised in solving complex mathematical equations and arriving at a consensus on the validity of transactions within networks of users. Time-stamping technologies then periodically bundle verified transactions into datasets, or ‘blocks’. Linked together sequentially, these ‘blocks’ form ‘chains’ that make up larger ‘blockchain’ databases of transactions that broadcast a permanent record of transactions whilst maintaining the anonymity of users and specific content exchanged. Blockchains are intended to be maintained by all users in manners meant to be immutable, unless users arrive at a clear consensus to undertake changes.

Dirk G. Baur, Thomas Dimpfl

Abstract In December 2017, both the Chicago Board Options Exchange and the Chicago Mercantile Exchange introduced futures contracts on bitcoin. We investigate to what extent they provide useful information for the price discovery of bitcoin. We rely on the information share methodology of Hasbrouck (1995, J Finance , 50, pp. 1175–1199) and Gonzalo and Granger (1995, J Bus Econ Stat, 13, pp. 27–35) and find that the spot price leads the futures price. We attribute this result to the higher trading volume and the longer trading hours of the globally distributed bitcoin spot market, compared to the relatively restricted access to the US‐based futures markets.

Volodymyr Babich, Gilles Hilary

Blockchain is a form of distributed ledger technology (DLT) that has grown in prominence, although its full potential and possible downsides are not yet fully understood, especially with respect to Operations Management (OM). This manuscript contributes to filling in this gap. We identify three research themes in applying Blockchain technology to OM, illustrated through several applications to OM problems. Elsewhere, in a companion article, (Babich and Hilary (2018)), we provide a conceptual framework for the role of Blockchain and other DLT in OM, along with specific examples of research questions, and we demonstrate how research in economics can inform research in OM on Blockchain applications. Finally, we discuss possible future uses for the technology.

Roberto Casado‐Vara, Javier Prieto, Fernando De la Prieta, Juan M. Corchado

Current supply chain is a linear economy model that directly or indirectly fulfills supply needs. But this model has some disadvantages, such as the relationships between the members of the supply chain or the lack of information for the consumer about the origin of the products. In this paper we propose a new model of supply chain via blockchain. This new model enables the concept of circular economy and eliminates many of the disadvantages of the current supply chain. In order to coordinate all the transactions that take place in the supply chain a multi-agent system is created for this paper.

Nguyen Cong Luong, Zehui Xiong, Ping Wang, Dusit Niyato

Blockchain has recently been applied in many applications such as bitcoin, smart grid, and Internet of Things (IoT) as a public ledger of transactions. However, the use of blockchain in mobile environments is still limited because the mining process consumes too much computing and energy resources on mobile devices. Edge computing offered by the Edge Computing Service Provider can be adopted as a viable solution for offloading the mining tasks from the mobile devices, i.e., miners, in the mobile blockchain environment. However, a mechanism needs to be designed for edge resource allocation to maximize the revenue for the Edge Computing Service Provider and to ensure incentive compatibility and individual rationality is still open. In this paper, we develop an optimal auction based on deep learning for the edge resource allocation. Specifically, we construct a multi-layer neural network architecture based on an analytical solution of the optimal auction. The neural networks first perform monotone transformations of the miners' bids. Then, they calculate allocation and conditional payment rules for the miners. We use valuations of the miners as the data training to adjust parameters of the neural networks so as to optimize the loss function which is the expected, negated revenue of the Edge Computing Service Provider. We show the experimental results to confirm the benefits of using the deep learning for deriving the optimal auction for mobile blockchain with high revenue

Xueqin Liang, Zheng Yan

A number of information and resource sharing systems arise and become popular with the rapid development of communication technologies and mobile smart devices. The interactions between humans and machines are intense and their synergistic reactions have attracted special attention for the reason of forming so called Human–Machine Networks (HMN). HMNs refer to these networks where humans and machines work together to provide synergistic effects on their payoffs. Game theory, which can capture the interactions among players dexterously, has been widely used in solving various problems in HMN systems from the view of economics. In this paper, we extensively review the literature about game theoretical methods in HMNs, in particular focusing on its typical systems such as crowdsourcing, an elemental HMN and Internet of Things (IoT), a hybrid HMN, as well as Bitcoin. We propose a series of requirements to evaluate existing work. For reviewing and analyzing each system, we specify application purposes, players, strategies, game models and equilibria based on our proposed requirements. In the sequel, we identify a number of common and distinct open issues in HMNs and point out future research directions.

Ron Lavi, Or Sattath, Aviv Zohar

The Bitcoin payment system involves two agent types: Users that transact with the currency and pay fees and miners in charge of authorizing transactions and securing the system in return for these fees. Two of Bitcoin's challenges are (i) securing sufficient miner revenues as block rewards decrease, and (ii) alleviating the throughput limitation due to a small maximal block size cap. These issues are strongly related as increasing the maximal block size may decrease revenue due to Bitcoin's pay-your-bid approach. To decouple them, we analyze the “monopolistic auction” [8], showing: (i) its revenue does not decrease as the maximal block size increases, (ii) it is resilient to an untrusted auctioneer (the miner), and (iii) simplicity for transaction issuers (bidders), as the average gain from strategic bid shading (relative to bidding one's true maximal willingness to pay) diminishes as the number of bids increases.

Joseph Y. Halpern, Rafael Pass

At the heart of the Bitcoin is a blockchain protocol, a protocol for achieving consensus on a public ledger that records bitcoin transactions. To the extent that a blockchain protocol is used for applications such as contract signing and making certain transactions (such as house sales) public, we need to understand what guarantees the protocol gives us in terms of agents' knowledge. Here, we provide a complete characterization of agent's knowledge when running a blockchain protocol using a variant of common knowledge that takes into account the fact that agents can enter and leave the system, it is not known which agents are in fact following the protocol (some agents may want to deviate if they can gain by doing so), and the fact that the guarantees provided by blockchain protocols are probabilistic. We then consider some scenarios involving contracts and show that this level of knowledge suffices for some scenarios, but not others.

Robert Norvill, Beltrán Borja Fiz Pontiveros, Radu State, Irfan Awan · 5 authors

Smart contracts have recently attracted interest from diverse fields including law and finance. Ethereum in particular has grown rapidly to accommodate an entire ecosystem of contracts which run using its own crypto-currency. Smart contract developers can opt to verify their contracts so that any user can inspect and audit the code before executing the contract. However, the huge numbers of deployed smart contracts and the lack of supporting tools for the analysis of smart contracts makes it very challenging to get insights into this eco-environment, where code gets executed through transactions performing value transfer of a crypto-currency. We address this problem and report on the use of unsupervised clustering techniques and a seed set of verified contracts, in this work we propose a framework to group together similar contracts within the Ethereum network using only the contracts publicly available compiled code. We report qualitative and quantitative results on a dataset and provide the dataset and project code to the research community.

Giuseppe Pappalardo, Tiziana Di Matteo, Guido Caldarelli, Tomaso Aste

We investigate Bitcoin network observing transactions broadcasted into the network during a week from 04/05/2016 and then monitoring their inclusion into the blockchain during the following seven months.We unveil that 42% of the transactions are still not included in the Blockchain after 1 h from their appearance and 20% of the transactions are still not included in the Blockchain after 30 days, therefore revealing a great inefficiency in the Bitcoin system. However, we observe that most of these “forgotten” transactions have low values and in terms of transferred value the system is less inefficient with 93% of the transactions value being included into the Blockchain within 3 h and 98.8% within a day. The fact that a sizeable fraction of transactions is not processed timely casts serious doubts on the usability of the Bitcoin Blockchain for reliable time-stamping purposes. It also calls for a debate about the right systems of incentives which a peer-to-peer unintermediated system should introduce to promote efficient transaction recording

Katrin Tinn

No abstract is available for this record.

Felipe de Oliveira Simoyama, Ian Grigg, Ricardo Luiz Pereira Bueno, Ludmila Cavarzere De Oliveira

Legislation generally requires public agencies to account for their activity to the public. Among the many duties imposed by legislatures around the world are requirements for transparency in procurement of services, budgeting and presentation of accounts. However, agencies in countries with high corruption problems have trouble complying with the legislation, especially in smaller agencies. Moreover, it is typically infeasible for national auditors to audit all the accounts rendered, and instead, they select a small sample for audit based on their level of risk. Another problem is that the presentation of accounts occurs once a year for all agencies, leading to a seasonal demand with significant lag time between auditing and accounting period. In this study, we present a non-technical framework based on the emerging technology of blockchain that could be a solution to all these concerns. We apply it within the context of Brazilian legislation and the Federal Court of Accounts of Brazil (TCU), although the proposal is applicable across a wide range of countries facing severe corruption.