Mahdi Fooladgar, Mohammad Hossein Manshaei, Murtuza Jadliwala, Mohammad Ashiqur Rahman
Algorand is a recent, open-source public or permissionless blockchain system that employs a novel proof-of-stake byzantine consensus protocol to efficiently scale the distributed transaction agreement problem to billions of users. In addition to being more democratic and energy-efficient, compared to popular protocols such as Bitcoin, Algorand also touts a much high transaction throughput. This paper is the first attempt in the literature to study and address this problem. By carefully modeling the participation costs and rewards received within a strategic interaction scenario, we first empirically show that even a small number of nodes defecting to participate in the protocol tasks due to insufficiency of the available incentives can result in the Algorand network failing to compute and add new blocks of transactions. We further show that this effect can be formalized by means of a mathematical model of interaction in Algorand given its participation costs and the current (or planned) reward distribution/sharing approach envisioned by the Algorand Foundation. Specifically, on analyzing this game model we observed that mutual cooperation under the currently proposed reward sharing approach is not a Nash equilibrium. This is a significant result which could threaten the success of an otherwise robust distributed consensus mechanism. We propose a novel reward sharing approach for Algorand and formally show that it is incentive-compatible, i.e., it can guarantee cooperation within a group of selfish Algorand users. Extensive numerical and Algorand simulation results further confirm our analytical findings. Moreover, these results show that for a given distribution of stakes in the network, our reward sharing approach can guarantee cooperation with a significantly smaller reward per round.
Currently, there is no universal method to track who shared what, with whom, when and for what purposes in a verifiable way to create an individual incentive for data owners. A platform that allows data owners to control, delete, and get rewards from sharing their data would be an important enabler of user data-sharing. We propose a usable blockchain- and smart contracts-based framework that allows users to store research data locally and share without losing control and ownership of it. We have created smart contracts for building automatic verification of the conditions for data access that also naturally supports building up a verifiable record of the provenance, incentives for users to share their data and accountability of access. The paper presents a review of the existing work of research data sharing, the proposed blockchain-based framework and an evaluation of the framework by measuring the transaction cost for smart contracts deployment. The results show that nodes responded quickly in all tested cases with a befitting transaction cost.
In order to scale transaction rates for deployment across the global web, many cryptocurrencies have deployed so-called "Layer-2" networks of private payment channels. An idealized payment network behaves like a Credit Network, a model for transactions across a network of bilateral trust relationships. Credit Networks capture many aspects of traditional currencies as well as new virtual currencies and payment mechanisms. In the traditional credit network model, if an agent defaults, every other node that trusted it is vulnerable to loss. In a cryptocurrency context, trust is manufactured by capital deposits, and thus there arises a natural tradeoff between network liquidity (i.e. the fraction of transactions that succeed) and the cost of capital deposits. In this paper, we introduce constraints that bound the total amount of loss that the rest of the network can suffer if an agent (or a set of agents) were to default - equivalently, how the network changes if agents can support limited solvency guarantees. We show that these constraints preserve the analytical structure of a credit network. Furthermore, we show that aggregate borrowing constraints greatly simplify the network structure and in the payment network context achieve the optimal tradeoff between liquidity and amount of escrowed capital.
Georgios Birmpas, Ηλίας Κουτσουπιάς, Philip Lazos, Francisco J. Marmolejo-Cossío
Bitcoin is a decentralised digital currency that serves as an alternative to existing transaction systems based on an external central authority for security. Although Bitcoin has many desirable properties, one of its fundamental shortcomings is its inability to process transactions at high rates. To address this challenge, many subsequent protocols either modify the rules of block acceptance (longest chain rule) and reward, or alter the graphical structure of the public ledger from a tree to a directed acyclic graph (DAG). Motivated by these approaches, we introduce a new general framework that captures ledger growth for a large class of DAG-based implementations. With this in hand, and by assuming honest miner behaviour, we (experimentally) explore how different DAG-based protocols perform in terms of fairness, i.e., if the block reward of a miner is proportional to their hash power, as well as efficiency, i.e. what proportion of user transactions a ledger deems valid after a certain length of time. Our results demonstrate fundamental structural limits on how well DAG-based ledger protocols cope with a high transaction load. More specifically, we show that even in a scenario where every miner on the system is honest in terms of when they publish blocks, what they point to, and what transactions each block contains, fairness and efficiency of the ledger can break down at specific hash rates if miners have differing levels of connectivity to the P2P network sustaining the protocol.
Proof-of-work blockchains reward each miner for one completed block by an amount that is, in expectation, proportional to the number of hashes the miner contributed to the mining of the block. Is this proportional allocation rule optimal? And in what sense? And what other rules are possible? In particular, what are the desirable properties that any "good" allocation rule should satisfy? To answer these questions, we embark on an axiomatic theory of incentives in proof-of-work blockchains at the time scale of a single block. We consider desirable properties of allocation rules including: symmetry; budget balance (weak or strong); sybil-proofness; and various grades of collusion-proofness. We show that Bitcoin's proportional allocation rule is the unique allocation rule satisfying a certain system of properties, but this does not hold for slightly weaker sets of properties, or when the miners are not risk-neutral. We also point out that a rich class of allocation rules can be approximately implemented in a proof-of-work blockchain.
Off-chain transaction networks can mitigate the scalability issues of today's trustless electronic cash systems such as Bitcoin. However, these peer-to-peer networks also introduce a new attack surface which is not well-understood today. This paper identifies and analyzes, a novel Denial-of-Service attack which is based on route hijacking, i.e., which exploits the way transactions are routed and executed along the created channels of the network. This attack is conceptually interesting as even a limited attacker that manipulates the topology through the creation of new channels can navigate tradeoffs related to the way it attacks the network. Furthermore, the attack also highlights a fundamental design tradeoff for the defender (who determines its own routes): to become less predictable and hence secure, a rational node has to pay higher fees to nodes that forward its payments. We find that the three most common implementations for payment channels in Bitcoin (lnd, C-lightning, Eclair) approach routing differently. We begin by surveying the current state of the Lightning network and explore the routes chosen by these implementations. We find that in the current network nearly 60\% of all routes pass through only five nodes, while 80\% go through only 10 nodes. Thus, a relatively small number of colluding nodes can deny service to a large fraction of the network. We then turn to study an external attacker who creates links to the network and draws more routes through its nodes by asking for lower fees. We find that just five new links are enough to draw the majority (65\% - 75\%) of the traffic regardless of the implementation being used. The cost of creating these links is very low. We discuss the differences between implementations and eventually derive our own suggested routing policy, which is based on a novel combination of existing approaches.
This paper applies biomimetic engineering to the problem of permissionless Byzantine consensus and achieves results that surpass the prior state of the art by four orders of magnitude. It introduces a biologically inspired asymmetric Sybil-resistance mechanism, Proof-of-Balance, which can replace symmetric Proof-of-Work and Proof-of-Stake weighting schemes.
The biomimetic mechanism is incorporated into a permissionless blockchain protocol, Key Retroactivity Network Consensus (KRNC), which delivers ~40,000 times the security and speed of today's decentralized ledgers. KRNC allows the fiat money that the public already owns to be upgraded with cryptographic inflation protection, eliminating the problems inherent in bootstrapping new currencies like Bitcoin and Ethereum.
The paper includes two independently significant contributions to the literature. First, it replaces the non-structural axioms invoked in prior work with a new formal method for reasoning about trust, liveness, and safety from first principles. Second, it demonstrates how two previously overlooked exploits, book-prize attacks and pseudo-transfer attacks, collectively undermine the security guarantees of all prior permissionless ledgers.
Naman Goel, Cyril van Schreven, Aris Filos-Ratsikas, Boi Faltings
Blockchain based systems allow various kinds of financial transactions to be executed in a decentralized manner. However, these systems often rely on a trusted third party (oracle) to get correct information about the real-world events, which trigger the financial transactions. In this paper, we identify two biggest challenges in building decentralized, trustless and transparent oracles. The first challenge is acquiring correct information about the real-world events without relying on a trusted information provider. We show how a peer-consistency incentive mechanism can be used to acquire truthful information from an untrusted and self-interested crowd, even when the crowd has outside incentives to provide wrong informations. The second is a system design and implementation challenge. For the first time, we show how to implement a trustless and transparent oracle in Ethereum. We discuss various non-trivial issues that arise in implementing peer-consistency mechanisms in Ethereum, suggest several optimizations to reduce gas cost and provide empirical analysis.
Jason Teutsch, Vitalik Buterin, Christopher L. Brown
Ethereum has emerged as a dynamic platform for exchanging cryptocurrency tokens. While token crowdsales cannot simultaneously guarantee buyers both certainty of valuation and certainty of participation, we show that if each token buyer specifies a desired purchase quantity at each valuation then everyone can successfully participate. Our implementation introduces smart contract techniques which recruit outside participants in order to circumvent computational complexity barriers.
We outline a token model for Truebit, a retrofitting, blockchain enhancement which enables secure, community-based computation. The model addresses the challenge of stable task pricing, as raised in the Truebit whitepaper, without appealing to external oracles, exchanges, or hierarchical nodes. The system's sustainable economics and fair market pricing derive from a mintable token format which leverages existing tokens for liquidity. Finally, we introduce a governance layer whose lifecycles culminates with permanent dissolution into utility tokens, thereby tending the network towards autonomous decentralization.
Georgia Avarikioti, Rolf Scheuner, Roger Wattenhofer
Payment networks were introduced to address the limitation on the transaction throughput of popular blockchains. To open a payment channel one has to publish a transaction on-chain and pay the appropriate transaction fee. A transaction can be routed in the network, as long as there is a path of channels with the necessary capital. The intermediate nodes on this path can ask for a fee to forward the transaction. Hence, opening channels, although costly, can benefit a party, both by reducing the cost of the party for sending a transaction and by collecting the fees from forwarding transactions of other parties. This trade-off spawns a network creation game between the channel parties. In this work, we introduce the first game theoretic model for analyzing the network creation game on blockchain payment channels. Further, we examine various network structures (path, star, complete bipartite graph and clique) and determine for each one of them the constraints (fee value) under which they constitute a Nash equilibrium, given a fixed fee policy. Last, we show that the star is a Nash equilibrium when each channel party can freely decide the channel fee. On the other hand, we prove the complete bipartite graph can never be a Nash equilibrium, given a free fee policy.
All public blockchains are secured by a proof of opportunity cost among block producers. For example, the security offered by proof-of-work (PoW) systems, like Bitcoin, is due to spent computation; it is work precisely because it cannot be performed for free. In general, more resources provably lost in producing blocks yields more security for the blockchain. When two blockchains share the same mechanism for providing opportunity cost, as is the case when they share the same PoW algorithm, the two chains compete for resources from block producers. Indeed, if there exists a liquid market between resource types, then theoretically all blockchains will compete for resources. In this paper, we show that there exists a resource allocation equilibrium between any two blockchains, which is essentially driven by the fiat value of reward that each chain offers in return for providing security. We go on to prove that this equilibrium is singular and always achieved provided that block producers behave in a greedy, but cautious fashion. The opposite is true when they are overly greedy: resource allocation oscillates in extremes between the two chains. We show that these results hold both in practice and in a block generation simulation. Finally, we demonstrate several applications of this theory including a trustless price-ratio oracle, increased security for blockchains whose coins have lower fiat value, and a quantification of cost to allocating resources away from the equilibrium.
Stefanos Leonardos, Daniel Reijsbergen, Georgios Piliouras
The rapid evolution of blockchain technology has brought together stakeholders from fundamentally different backgrounds. The result is a diverse ecosystem, as exemplified by the development of a wide range of different blockchain protocols. This raises questions for decision and policy makers: How do different protocols compare? What are their trade-offs? Existing efforts to survey the area reveal a fragmented terminology and the lack of a unified framework to reason about the properties of blockchain protocols. In this paper, we work towards bridging this gap. We present a five-dimensional design space with a modular structure in which protocols can be compared and understood. Based on these five axes -- Optimality, Stability, Efficiency, Robustness and Persistence -- we organize the properties of existing protocols in subcategories of increasing granularity. The result is a dynamic scheme -- termed the PREStO framework -- which aids the interaction between stakeholders of different backgrounds, including managers and investors, and which enables systematic reasoning about blockchain protocols. We illustrate its value by comparing existing protocols and identifying research challenges, hence making a first step towards understanding the blockchain ecosystem through a more comprehensive lens.
Francisco J. Marmolejo-Cossío, Eric Brigham, Benjamin Sela, Jonathan Katz
The Bitcoin protocol prescribes certain behavior by the miners who are responsible for maintaining and extending the underlying blockchain; in particular, miners who successfully solve a puzzle, and hence can extend the chain by a block, are supposed to release that block immediately. Eyal and Sirer showed, however, that a selfish miner is incentivized to deviate from the protocol and withhold its blocks under certain conditions. The analysis by Eyal and Sirer, as well as in followup work, considers a \emph{single} deviating miner (who may control a large fraction of the hashing power in the network) interacting with a remaining pool of honest miners. Here, we extend this analysis to the case where there are \emph{multiple} (non-colluding) selfish miners. We find that with multiple strategic miners, specific deviations from honest mining by multiple strategic agents can outperform honest mining, even if individually miners would not be incentivised to be dishonest. This previous point effectively renders the Bitcoin protocol to be less secure than previously thought.
Cryptocurrencies have garnered much attention in recent years, both from the academic community and industry. One interesting aspect of cryptocurrencies is their explicit consideration of incentives at the protocol level. Understanding how to incorporate this into the models used to design cryptocurrencies has motivated a large body of work, yet many open problems still exist and current systems rarely deal with incentive related problems well. This issue arises due to the gap between Cryptography and Distributed Systems security, which deals with traditional security problems that ignore the explicit consideration of incentives, and Game Theory, which deals best with situations involving incentives. With this work, we aim to offer a systematization of the work that relates to this problem, considering papers that blend Game Theory with Cryptography or Distributed systems and discussing how they can be related. This gives an overview of the available tools, and we look at their (potential) use in practice, in the context of existing blockchain based systems that have been proposed or implemented.
Ηλίας Κουτσουπιάς, Philip Lazos, Foluso Ogunlana, Paolo Serafino
We study the strategic implications that arise from adding one extra option to the miners participating in the bitcoin protocol. We propose that when adding a block, miners also have the ability to pay forward an amount to be collected by the first miner who successfully extends their branch, giving them the power to influence the incentives for mining. We formulate a stochastic game for the study of such incentives and show that with this added option, smaller miners can guarantee that the best response of even substantially more powerful miners is to follow the expected behavior intended by the protocol designer.
Yu‐Jin Kwon, Jian Liu, Minjeong Kim, Dawn Song · 5 authors
Bitcoin uses blockchain technology and proof-of-work (PoW) mechanism where nodes spend computing resources and earn rewards in return for spending these resources. This incentive system has caused power to be significantly biased towards a few nodes, called mining pools. In fact, poor decentralization appears not only in PoW-based coins but also in coins adopting other mechanisms such as proof-of-stake (PoS) and delegated proof-of-stake (DPoS). In this paper, we target this centralization issue. To this end, we first define (m, \varepsilon, δ)-decentralization as a state that satisfies 1) there are at least m participants running a node and 2) the ratio between the total resource power of nodes run by the richest and δ-th percentile participants is less than or equal to 1+\varepsilon. To see if it is possible to achieve good decentralization, we introduce sufficient conditions for the incentive system of a blockchain to reach (m, \varepsilon, δ)-decentralization. When satisfying the conditions, a blockchain system can reach full decentralization with probability 1. However, to achieve this, the blockchain system should be able to assign a positive Sybil cost, where the Sybil cost is defined as the difference between the cost for one participant running multiple nodes and the total cost for multiple participants each running one node. On the other hand, we prove that when there is no Sybil cost, the probability of reaching (m, \varepsilon, δ)-decentralization is upper bounded by a value close to 0, considering a large rich-poor gap. To determine the conditions that each system cannot satisfy, we also analyze protocols of all PoW, PoS, and DPoS coins in the top 100 coins according to our conditions. Finally, we conduct data analysis of these coins to validate our theory.
This paper deals with the design of the secure network in an Enhanced Internet of Vehicles by using the Blockchain Governance Game (BGG). The BGG is a system model of a stochastic game to find best strategies towards preparation of preventing a network malfunction by an attacker and the paper applies this game model into the connected vehicle security. Analytically tractable results for decision-making parameters enable to predict the moment for safety operations and to deliver the optimal combination of the number of reserved nodes with the acceptance probability of backup nodes to protect a connected car. This research helps for whom considers the enhanced secure IoV architecture with the BGG within a decentralized network.
Philip Daian, Steven Goldfeder, Tyler Kell, Yunqi Li · 8 authors
Blockchains, and specifically smart contracts, have promised to create fair and transparent trading ecosystems. Unfortunately, we show that this promise has not been met. We document and quantify the widespread and rising deployment of arbitrage bots in blockchain systems, specifically in decentralized exchanges (or "DEXes"). Like high-frequency traders on Wall Street, these bots exploit inefficiencies in DEXes, paying high transaction fees and optimizing network latency to frontrun, i.e., anticipate and exploit, ordinary users' DEX trades. We study the breadth of DEX arbitrage bots in a subset of transactions that yield quantifiable revenue to these bots. We also study bots' profit-making strategies, with a focus on blockchain-specific elements. We observe bots engage in what we call priority gas auctions (PGAs), competitively bidding up transaction fees in order to obtain priority ordering, i.e., early block position and execution, for their transactions. PGAs present an interesting and complex new continuous-time, partial-information, game-theoretic model that we formalize and study. We release an interactive web portal, http://frontrun.me/, to provide the community with real-time data on PGAs. We additionally show that high fees paid for priority transaction ordering poses a systemic risk to consensus-layer security. We explain that such fees are just one form of a general phenomenon in DEXes and beyond---what we call miner extractable value (MEV)---that poses concrete, measurable, consensus-layer security risks. We show empirically that MEV poses a realistic threat to Ethereum today. Our work highlights the large, complex risks created by transaction-ordering dependencies in smart contracts and the ways in which traditional forms of financial-market exploitation are adapting to and penetrating blockchain economies.
Increased interest in scalable and high-throughput blockchains has led to an explosion in the number of committee selection methods in the literature. Committee selection mechanisms allow consensus protocols to safely select a committee, or a small subset of validators that is permitted to vote and verify a block of transactions, in a distributed ledger. There are many such mechanisms, each with substantially different methodologies and guarantees on communication complexity, resource usage, and fairness. In this paper, we illustrate that, despite these implementation-level differences, there are strong statistical similarities between committee selection mechanisms. We concretely show this by proving that the committee selection of the Avalanche consensus protocol can be used to choose committees in the Stellar Consensus Protocol that satisfy the necessary and sufficient conditions for Byzantine agreement. We also verify these claims using simulations and numerically observe sharp phase transitions as a function of protocol parameters. Our results suggest the existence of a "statistical taxonomy" of committee selection mechanisms in distributed consensus algorithms.
To participate in the distributed consensus of permissionless blockchains, prospective nodes -- or miners -- provide proof of designated, costly resources. However, in contrast to the intended decentralization, current data on blockchain mining unveils increased concentration of these resources in a few major entities, typically mining pools. To study strategic considerations in this setting, we employ the concept of Oceanic Games, Milnor and Shapley (1978). Oceanic Games have been used to analyze decision making in corporate settings with small numbers of dominant players (shareholders) and large numbers of individually insignificant players, the ocean. Unlike standard equilibrium models, they focus on measuring the value (or power) per entity and per unit of resource} in a given distribution of resources. These values are viewed as strategic components in coalition formations, mergers and resource acquisitions. Considering such issues relevant to blockchain governance and long-term sustainability, we adapt oceanic games to blockchain mining and illustrate the defined concepts via examples. The application of existing results reveals incentives for individual miners to merge in order to increase the value of their resources. This offers an alternative perspective to the observed centralization and concentration of mining power. Beyond numerical simulations, we use the model to identify issues relevant to the design of future cryptocurrencies and formulate prospective research questions.
This paper deals with design of the alternative secure Blockchain network framework to prevent damages from an attacker. The concept of the strategic alliance of the management is applied on the top of the recent developed stochastic game framework. This new enhanced hybrid theoretical model has been developed based on the combination of the conventional game theory, the fluctuation theory and the Blockchain Governance Game to find best strategies towards preparation for preventing a network malfunction from an attacker by making the strategic alliance with other genuine miners. Analytically tractable results for decision making parameters are fully obtained which enable to predict the moment for operations and deliver the optimal number of the alliance with other nodes to protect the Blockchain network. This research helps for whom considers the initial coin offering or launching new blockchain based services with enhancing the security features by alliance with the trusted miners within the decentralized network.
In future, information may become one of the most important assets in economy. However, unlike common goods (e.g. clothing), information is troublesome in trading since the information commodities are \emph{vulnerable}, as they lose their values immediately after revelation, and possibly unverifiable, as they can be subjective. By authorizing a trusted center (e.g. Amazon) to help manage the information trade, traders are ``forced'' to give the trusted center the ability to become an information monopolist. To this end, we need a trust-free (i.e. without a trusted center and with only strategic traders) unverifiable information trade protocol such that it 1) motivates the sellers to provide high quality information, and the buyer to pay for the information with a fair price (truthful); 2) except the owner, the information is known only to its buyer if the trade is executed (secure). In an unverifiable information trade scenario (e.g. a medical company wants to buy experts' opinions on multiple difficult medical images with unknown pathological truth from several hospitals), we design a trust-free, truthful, and secure protocol, Smart Info-Dealer (SMind), for information trading, by borrowing three cutting-edge tools that include peer prediction, secure multi-party computation, and smart contract. With SMind, without a trusted center, a seller with high-quality information is able to sell her information securely at a fair price and those with low-quality information cannot earn extra money with poor information or steal information from other sellers. We believe SMind will help describe a free and secure information trade scenario in the future.
Summary Proof of stake (PoS) protocols rely on voting mechanisms to reach consensus on the current state. If an enhanced majority of staking nodes, also called validators , agree on a proposed block, then this block is appended to the blockchain. Yet these protocols remain vulnerable to faults caused by validators who abstain either accidentally or maliciously. To protect against such faults while retaining the PoS selection and reward allocation schemes, we study weighted voting in validator committees. We formalize the block creation process and introduce validators' voting profiles which we update by a multiplicative weights algorithm relative to validators' voting behavior and aggregate blockchain rewards. Using this framework, we leverage weighted majority voting rules that optimize collective decision making to show, both numerically and analytically, that the consensus mechanism is more robust if validators' votes are appropriately scaled. We raise potential issues and limitations of weighted voting in trustless, decentralized networks and relate our results to the design of current PoS protocols.