Blockchain Papers

Xu Wang, Yanjiao Chen, Qian Zhang

No abstract is available for this record.

Justin Macinante

The market proposed in this book is introduced in terms of its bifurcated nature. The argument in favour of networking, as opposed to linking, in order to connect diverse pricing schemes is set out; then the technology proposed to facilitate networking is introduced and that technology application is examined in terms of specific characteristics, including the requirements of the Paris Agreement, providing a rationale for the application of the technology.

Georgiy Kolesnik

A direct mechanism of impact on the utility functions of agents in social and economic systems is studied. This mechanism is widely used in various forms by public authorities, commercial and non-profit organizations for reaching the desired behavior of individuals. A game-theoretic model of a hierarchical system composed of agents and super-individuals who can modify their utility functions is considered. The properties of equilibria in this model are investigated and the systems of different structure are compared with each other in terms of efficiency. It is established that the centralized management of super-individuals in certain conditions may be less effective in terms of maximizing public welfare than the decentralized schemes. In particular, this property can explain the successful development of peer-to-peer markets and decentralized financing mechanisms of projects in various spheres of human activity. Also, the presence of vertical competition effects in the system is demonstrated, which reduce the efficiency of equilibria with increasing the number of super-individuals.

Avigail Gurin-Schleifer, Ouri Poupko, Ehud Shapiro, Nimrod Talmon

We envision a self-sovereign, grassroots, digital community that grows in a bottom up, decentralized manner, and aim to integrate for it the following previously-proposed building blocks: a mechanism that accepts members into the community while keeping a bounded number of sybils; digital social contracts that define the possible interactions of a community bounded by such a contract; a design for a fault-tolerant distributed ledger implementation of digital social contracts; and a digital social contract for the egalitarian and just minting of digital currency, which also offers a form of universal basic income. We augment these building blocks with a mechanism that allows the community to maintain sovereignty over the economy, by making it sybil-resilient. To do so, we assume that the community has the means for exposing sybils and we extend the basic egalitarian currency digital social contract with means to balance the economy so that money minted by sybils is eventually retrieved and burned. This leads---asymptotically---to distributive justice among the genuine agents, with the amount of money minted being equal to the number of genuine agents, multiplied by the time each agent was a member of the community. We then argue that this approach constitutes a mechanism that deters the creation of sybils and incentivizes sybil hunting.

Yotam Sali, Aviv Zohar

Off-chain transaction channels represent one of the leading techniques to scale the transaction throughput in cryptocurrencies such as Bitcoin. They allow multiple agents to route payments through one another. So far, the topology and construction of payment networks has not been explored much. Participants are expected to minimize costs that are due to the allocation of liquidity as well as blockchain record fees. In this paper we study the optimization of maintenance costs of such networks. We present for the first time, a closed model for symmetric off-chain channels, and provide efficient algorithms for constructing minimal cost spanning-tree networks under this model. We prove that for any network demands, a simple hub topology provides a 2-approximation to the minimal maintenance cost showing that spanning trees in general are efficient. We also show an unbounded price of anarchy in a greedy game between the transactors, when each player wishes to minimize his costs by changing the network's structure. Finally, we simulate and compare the costs of payment networks with scale free demand topologies.

Olívia Terence Saa

In the first part of this work, we present, model and analyze a randomized automated peering model, that can be implemented to any distributed system. We conclude that the scheme has some desirable properties (specifically, a reasonable message overhead, a reasonable distribution of the numbers of peers of a node, and a negligible probability of an attack by a malicious actor to be successful). In the second part, we present an article published in the volume 136 of the journal Computers & Industrial Engineering, in October of 2019 (DOI 10.1016=j.cie.2019.07.025). In the paper, we analyze the Nash Equilibria of a graph attachment game, defined to represent the different strategies that malicious actors can use to take certain advantages in a DAG-based (i.e., based on Directed Acyclic Graphs) distributed ledger system. We prove the existence of almost symmetric Nash equilibria for the system where a part of players tries to optimize their attachment strategies and another part follows a default one. We also present simulations that show that the selfish players will not choose strategies that are considerably different that the recommended one.

Olívia Terence Saa

\n In the first part of this work, we present, model and analyze a randomized automated peering model, that can be implemented to any distributed system. We conclude that the scheme has some desirable properties (specifically, a reasonable message overhead, a reasonable distribution of the numbers of peers of a node, and a negligible probability of an attack by a malicious actor to be successful). In the second part, we present an article published in the volume 136 of the journal Computers & Industrial Engineering, in October of 2019 (DOI 10.1016=j.cie.2019.07.025). In the paper, we analyze the Nash Equilibria of a graph attachment game, defined to represent the different strategies that malicious actors can use to take certain advantages in a DAG-based (i.e., based on Directed Acyclic Graphs) distributed ledger system. We prove the existence of almost symmetric Nash equilibria for the system where a part of players tries to optimize their attachment strategies and another part follows a default one. We also present simulations that show that the selfish players will not choose strategies that are considerably different that the recommended one.\n

Qianlan Bai, Chao Zhang, Yuedong Xu, Xiaowei Chen · 5 authors

Ethereum is one of the most popular blockchain systems that supports more than half a million transactions every day. Whereas it remains mysterious what the transaction pattern is and how it evolves over time. In this paper, we study the evolutionary behavior of Ethereum transactions from a temporal graph point of view. It shows that there is no evidence that changes in average triplet closure duration is related to prices. We observe the macroscopic and microscopic burstiness of Ethereum transactions. We analyze the Gini indexes of the transaction graphs and the user wealth in which Ethereum is found to be very unfair since the very beginning, in a sense, “the rich is already very rich”.

Amirheckmat Taghizadeh, Hamed Kebriaei, Dusit Niyato

In a blockchain network, to mine new blocks like in cryptocurrencies or secure IoT networks, each node or player specifies the amount of computational power as its strategy by compromising between the cost and expected utility. Since the strategies of all players affect the expected utility of others through the probability of success, in this article, we first formulate the mining competition among the players in a blockchain network as a noncooperative game. The existence and uniqueness of the Nash equilibrium (NE) point of the game are proven. We consider a gradient learning strategy for the players while preserving their private information as a bounded rational learning model. Furthermore, the convergence of this learning strategy to the E-NE point of the game is studied analytically using the concept of the mean field (MF) game theory. While conventional analytical tools face problems in dealing with a large number of participants, which is a key feature in many IoT networks, deploying the MF game theory facilitates analyzing the behavior of a large population of players by encapsulating the network behavior in an MF term. As the number of players becomes larger, the accuracy of the MF method becomes greater. Moreover, in the MF approach, no information exchange among the agents is needed for optimal decision making and the privacy of the players is preserved. The minimal information exchange is also a proper motivation for using the MF approach in the IoT networks.

Floriana Gargiulo, Ilaria Bertazzi, Sylvie Huet

Bitcoin-otc is a peer to peer (over-the-counter) marketplace for trading with bitcoin crypto-currency. To mitigate the risks of the p2p unsupervised exchanges, the establishment of a reliable reputation systems is needed: for this reason, a web of trust is implemented on the website. The availability of all the historic of the users' interaction data makes this dataset a unique playground for studying reputation dynamics through others' evaluations. We analyze the structure and the dynamics of this web of trust with a multilayer network approach distinguishing the rewarding and the punitive behaviors. We show that the rewarding and the punitive behavior have similar emergent topological properties (apart from the clustering coefficient being higher for the rewarding layer) and that the resultant reputation originates from the complex interaction of the more regular behaviors on the layers. We show that the systems' reputation inequality reaches a high steady value with the network evolution. We characterize the reputation trajectories identifying prototypical behaviors associated to three classes of users: trustworthy, untrusted and controversial. Controversial users are the only ones presenting up and down reputation trends. We focus on these cases for understanding which are the possible factors driving reputation falls and which dynamical patterns characterize these cascades: some users have real oscillating behaviors, other abuse of the trust system doing a few good transactions to gain reputation for cheating the users afterwards, other naturally and slowly die out after a long series of positive exchanges (like disappearing from the system) and finally, some users are hardly beaten by organized trolling attacks.

Moran Cerf, Sandra Matz, Aviram Berg

Human decision making is often prone to biases and irrationality. Group decisions add dynamic interactions that further complicate the choice process and frequently result in outcomes that are suboptimal for both the individual and the collective. We show that an implementation of a Blockchain protocol improves individuals’ decision strategies and increases the alignment between desires and outcomes. The Blockchain protocol affords (1) a distributed decision, (2) the ability to iterate repeatedly over a choice, (3) the use of feedback and corrective inputs, and (4) the quantification of intrinsic choice attributes (i.e., greed, desire for fairness, etc.). We test our protocol’s performance in the context of the Public Goods Game. The game, a generalized version of the Prisoner’s Dilemma, allows players to maximize their own gain or act in ways that benefit the collective. Empirical evidence shows that participants’ cooperation in the game typically decreases once a single player favors their own interest at the expense of others’. In our Blockchain implementation, “smart contracts” are used to safeguard individuals against losses and, consequently, encourage contributions to the public good. Across different tested simulations, the Blockchain protocol increases both the overall trust among the participants and their profits. Agents decision strategies remain flexible while they act as each other’s source of accountability (which can be seen as formalized distributed “Ulysses contract”). To highlight the contribution of our protocol to society at large we incorporated an entity that represents the public good. This benevolent independent beneficiary of the contributions of all participants (e.g. a charity organization or a tax system) maximized its payoffs when the Blockchain protocol was implemented. We provide a formalized implementation of the Blockchain protocol and discuss potential applications that could benefit society by more accurately capturing individuals’ preferences. For example, the protocol could help maximize profits in groups, facilitate democratic election that better reflect the public opinion, or enable group decision in circumstances where a balance between anonymity, diverse opinions, personal preferences and loss-aversion play a role.

Nida Khan, Tabrez Ahmad, Anass Patel, Radu State

Blockchain governance is a subject of ongoing research and an interdisciplinary view of blockchain governance is vital to aid in further research for establishing a formal governance framework for this nascent technology. In this paper, the position of blockchain governance within the hierarchy of Institutional governance is discussed. Blockchain governance is analyzed from the perspective of IT governance using Nash equilibrium to predict the outcome of different governance decisions. A payoff matrix for blockchain governance is created and simulation of different strategy profiles is accomplished for computation of all Nash equilibria. The paper elaborates upon payoff matrices for different kinds of blockchain governance, which are used in the proposition of novel mathematical formulae usable to predict the best governance strategy that minimizes the occurrence of a hard fork as well as predicts the behavior of the majority during protocol updates. The paper also includes validation of the proposed formulae using real Ethereum data.

Chris Berg, Sinclair Davidson, Jason Potts

Blockchain technology is the distributed, decentralised ledger technology underlying Bitcoin and other cryptocurrencies. We apply Oliver Williamson’s transactions cost analysis to the blockchain consensus mechanism. Blockchains reduce the costs of opportunism but are not ‘trustless’. We show that blockchains are trust machines. Blockchains are platforms for three-sided bargaining that convert energy-intensive computation into economically-valuable trust.

Eitan Altman, Daniel Sadoc Menasché, Alexandre Reiffers-Masson, Mandar Datar · 7 authors

We model the competition over mining resources and over several cryptocurrencies as a non-cooperative game. Leveraging results about congestion games, we establish conditions for the existence of pure Nash equilibria and provide efficient algorithms for finding such equilibria. We account for multiple system models, varying according to the way that mining resources are allocated and shared and according to the granularity at which mining puzzle complexity is adjusted. When constraints on resources are included, the resulting game is a constrained resource allocation game for which we characterize a normalized Nash equilibrium. Under the proposed models, we provide structural properties of the corresponding types of equilibrium, e.g., establishing conditions under which at most two mining infrastructures will be active or under which no miners will have incentives to mine a given cryptocurrency.

Louis Bertucci

No abstract is available for this record.

Christian Ewerhart

This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. Moreover, miners are rewarded for blocks that eventually become part of the longest chain. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect.

Zongxi Li, A. Max Reppen, Ronnie Sircar

We propose a mean field game model to study the question of how centralization of reward and computational power occur in Bitcoin-like cryptocurrencies. Miners compete against each other for mining rewards by increasing their computational power. This leads to a novel mean field game of jump intensity control, which we solve explicitly for miners maximizing exponential utility and handle numerically in the case of miners with power utilities. We show that the heterogeneity of their initial wealth distribution leads to greater imbalance of the reward distribution, and increased wealth heterogeneity over time, or a “rich get richer” effect. This concentration phenomenon is aggravated by a higher Bitcoin mining reward and reduced by competition. Additionally, an advantaged miner with cost advantages such as access to cheaper electricity, contributes a significant amount of computational power in equilibrium, unaffected by competition from less efficient miners. Hence, cost efficiency can also result in the type of centralization seen among miners of cryptocurrencies. This paper was accepted by Kay Giesecke, finance. Funding: A. M. Reppen is partly supported by the Swiss National Science Foundation [Grant SNF 181815]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4798 .

Christo Pyromallis, Claudia Szabo

Understanding how complex system components interact and adapt to environment changes is critical for analyzing their emergent behavior and the various positive and negative effects of that emergent behaviors might have. Several modeling languages and frameworks have been proposed for the modeling of complex adaptive systems but few have been applied in practice beyond simple models such as flocks of birds and predator prey. In this paper, we model the adaptive behavior of various entities in a Bitcoin market. We employ CASTLE, a dedicated framework for the modeling of adaptability in complex adaptive systems. Contrary to existing models where realistic details are not included, we introduce the influence of price speculation and news on trader behavior and experiment with different trader behaviors under varying market conditions. Our analysis of a market of 1,000 initial traders shows the feasibility of our approach but also highlights future research challenges.

Dominique Torre, Sothearath Seang

This paper examines, with the help of a theoretical setting, the properties of two blockchain consensus protocols, namely the Proof of Work (PoW) and the Proof of Stake (PoS) protocol in the management of a digital local complementary currency or a network of digital local currencies. The model includes a control (by the issuer of the currency) of advantages derived from the use of a local currency by heterogeneous consumers and a determination of rewards for heterogeneous validators and miners. It also considers the resilience of these protocols to attacks conducted by an individual or a pool of validators or miners. Our results share similarities with an ordinary crypto-currency system and show that there is support for the PoS protocol for small communities of local complementary currencies, whereas the PoW appears to be more advantageous when the size of the communities is significantly large. JEL Classification: E42, D91, L86, O31

Colleen Alkalay-Houlihan, Nisarg Shah

Bitcoin, a cryptocurrency built on the blockchain data structure, has generated significant academic and commercial interest. Contrary to prior expectations, recent research has shown that participants of the protocol (the so-called “miners”) are not always incentivized to follow the protocol. We study the game induced by one such attack – the pool block withholding attack – in which mining pools (groups of miners) attack other mining pools. We focus on the case of two pools attacking each other, with potentially other mining power in the system.We show that this game always admits a pure Nash equilibrium, and its pure price of anarchy, which intuitively measures how much computational power can be wasted due to attacks in an equilibrium, is at most 3. We conjecture, and prove in special cases, that it is in fact at most 2. Our simulations provide compelling evidence for this conjecture, and show that players can quickly converge to the equilibrium by following best response strategies.

Vitalik Buterin, Zoë Hitzig, E. Glen Weyl

We propose a design for philanthropic or publicly funded seeding to allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods. The concept extends ideas from quadratic voting to a funding mechanism for endogenous community formation. Citizens make contributions to public goods of value to them. The amount received by the public good is (proportional to) the square of the sum of the square roots of contributions received. Under the “standard model,” this mechanism yields first best public goods provision. Variations can limit the cost, help protect against collusion, and aid coordination. We discuss applications to campaign finance and highlight directions for future analysis and experimentation. This paper was accepted by Joshua Gans, business strategy.

Yevhen Zolotavkin, Julián García, Joseph K. Liu

Pool mining is a common way to reduce income variance for miners in Proof of Work Cryptocurrencies. A vast majority of mining does happen in pools, where a popular scheme to distribute rewards is Pay per last N Shares (PPLNS). In PPLNS and related schemes, miners are frequently making decisions whose rewards are not immediate and will only manifest in the future. This implies that models of inter-temporal utility are relevant when considering the incentives of miners. We show that when including these features of human behaviour in models of rational pool miners, the conditions that lead to decentralisation are hampered because larger pools may be more attractive to miners. We present a new game theoretical model of PPLNS where rational miners have time preferences. In this setup, the incentives of miners to work for a pool depend on the initial distribution of power between mining pools, as well as the specific details of how time is discounted. Agents jumping to larger pools face a trade-off between reducing the expected payoff from their shares in their current pool, or getting faster rewards in the future by joining a larger pool. We consider a case where pools of different mining power have the same size of reward window N. According to our study, in equilibrium larger pools have a tendency to accumulate a disproportionate share of the network power at the expense of smaller pools. This outcome is prevalent over a large range of realistic model parameters. Our model shows that PPLNS may be harmful to the decentralised governance of cryptocurrencies. A way to ameliorate these negative effects, is to encourage pools to have diverse window sizes, or use different reward mechanisms. Doing this in a decentralised fashion is an open challenge.

Alireza Haghighat, Mehdi Shajari

No abstract is available for this record.

Eitan Altman, Alexandre Reiffers, Daniel Sadoc Menasché, Mandar Datar · 6 authors

We model the competition over several blockchains characterizing multiple cryptocurrencies as a non-cooperative game. Then, we specialize our results to two instances of the general game, showing properties of the Nash equilibrium. In particular, leveraging results about congestion games, we establish the existence of pure Nash equilibria and provide efficient algorithms for finding such equilibria.