An Economic Analysis of Difficulty Adjustment Algorithms in Proof-of-Work Blockchain Systems

Noda, Shunya; Okumura, Kyohei; Hashimoto, Yoshinori

doi:10.1145/3391403.3399475

Cited by 23 publications

(21 citation statements)

References 1 publication

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“…There is a vast literature on incentives in mining. Most of it, however, considers only block rewards [15,25,27,31,37,51,53,60,65,74]. As the block reward halves every four years, some recent work focused on analyzing how the incentives will change when transaction fees dominate the rewards.…”

Section: Related Workmentioning

confidence: 99%

Selfish & opaque transaction ordering in the Bitcoin blockchain

Messias

Alzayat

Chandrasekaran

et al. 2021

Proceedings of the 21st ACM Internet Measurement Conference

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Most public blockchain protocols, including the popular Bitcoin and Ethereum blockchains, do not formally specify the order in which miners should select transactions from the pool of pending (or uncommitted) transactions for inclusion in the blockchain. Over the years, informal conventions or "norms" for transaction ordering have, however, emerged via the use of shared software by miners, e.g., the GetBlockTemplate (GBT) mining protocol in Bitcoin Core. Today, a widely held view is that Bitcoin miners prioritize transactions based on their offered "transaction fee-per-byte. " Bitcoin users are, consequently, encouraged to increase the fees to accelerate the commitment of their transactions, particularly during periods of congestion. In this paper, we audit the Bitcoin blockchain and present statistically significant evidence of mining pools deviating from the norms to accelerate the commitment of transactions for which they have (i) a selfish or vested interest, or (ii) received dark-fee payments via opaque (non-public) side-channels. As blockchains are increasingly being used as a record-keeping substrate for a variety of decentralized (financial technology) systems, our findings call for an urgent discussion on defining neutrality norms that miners must adhere to when ordering transactions in the chains. Finally, we make our data sets and scripts publicly available. CCS CONCEPTS• Security and privacy → Social aspects of security and privacy; Economics of security and privacy.

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Section: Related Workmentioning

confidence: 99%

Selfish & opaque transaction ordering in the Bitcoin blockchain

Messias

Alzayat

Chandrasekaran

et al. 2021

Proceedings of the 21st ACM Internet Measurement Conference

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“…This section presents new empirical facts on the elasticity of hash supply with respect to the miners' revenue. Only few pieces of literature have worked on measuring elasticity of hash supply [5], but our paper distinguishes itself from the prior literature in terms of length and coverage of time-series data. We study the elasticity of hash supply with respect to miners' revenue using data from 3 different currencies (Bitcoin, Ethereum, and Ethereum Classic) from 2015-2020.…”

Section: Empirical Findingsmentioning

confidence: 99%

“…We apply three types of time-detrending filters that are commonly used in macroeconomics: Hodrick-Prescott (HP), Baxter-King (BK), and Christiano-Fitzgerald (CF) filters. 5 Figure 1 shows the decomposition of the logarithm of the total hash rate in the Bitcoin network over the past three years, using Hodrick-Prescott filter. The total hash rate of the Bitcoin network has an increasing trend over this time period, and the filter removes out the trend.…”

Section: Data and Empirical Strategy Datamentioning

confidence: 99%

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Selfish Mining Attacks Exacerbated by Elastic Hash Supply

Shibuya¹,

Yamamoto²,

Kojima³

et al. 2021

Preprint

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Several attacks have been proposed against Proof-of-Work blockchains, which may increase the attacker's share of mining rewards (e.g., selfish mining, block withholding). A further impact of such attacks, which has not been considered in prior work, is that decreasing the profitability of mining for honest nodes incentivizes them to stop mining or to leave the attacked chain for a more profitable one. The departure of honest nodes exacerbates the attack and may further decrease profitability and incentivize more honest nodes to leave. In this paper, we first present an empirical analysis showing that there is a statistically significant correlation between the profitability of mining and the total hash rate, confirming that miners indeed respond to changing profitability. Second, we present a theoretical analysis showing that selfish mining under such elastic hash supply leads either to the collapse of a chain, i.e., all honest nodes leaving, or to a stable equilibrium depending on the attacker's initial share.

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“…4,5 Using a dynamic economic model, Noda et al find that the traditional retargeting algorithim does not converge after a severe price shock when hashrate is allowed to vary depending on expected dollar reward value. 6 The Bitcoin Cash algorithm, with its moving 144-block window, reacts more quickly to relative price changes, adjusts its own block production, and mitigates the profitability disparity, to the benefit of both blockchains. It is found to converge slowly, but exhibits a worrisome resonant hashrate oscillation with a period of 144 blocks.…”

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confidence: 99%

Real-Time Block Rate Targeting

Harding¹

2020

ledger

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A proof-of-work blockchain uses a retargeting algorithm, also termed a difficulty adjustment algorithm, to manage the rate of block production in the presence of changing hashrate. To derive the parameters that guide the search for the next block, nearly all such algorithms rely on averages of past inter-block time observations, as measured by on-chain timestamps. We are motivated to seek better responsiveness to changing hashrate, while improving stability of the block production rate and retaining the progress-free property of mining. We describe a class of retargeting algorithms for which the sole inter-block time input is that of the block being searched for, and whose response is nonlinear in that time. We discuss how these algorithms allow the other consensus rules that govern allowable timestamps to be tightened, which may improve the blockchain’s effectiveness as a time-stamping machine.

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An Economic Analysis of Difficulty Adjustment Algorithms in Proof-of-Work Blockchain Systems

Cited by 23 publications

References 1 publication

Selfish & opaque transaction ordering in the Bitcoin blockchain

Selfish & opaque transaction ordering in the Bitcoin blockchain

Selfish Mining Attacks Exacerbated by Elastic Hash Supply

Real-Time Block Rate Targeting

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