Incentive Mechanism for Rational Miners in Bitcoin Mining Pool

Gang Xue, Jia Xu (), Hanwen Wu, Weifeng Lu and Lijie Xu
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Gang Xue: Nanjing University of Posts and Telecommunications
Jia Xu: Nanjing University of Posts and Telecommunications
Hanwen Wu: Nanjing University of Posts and Telecommunications
Weifeng Lu: Nanjing University of Posts and Telecommunications
Lijie Xu: Nanjing University of Posts and Telecommunications

Information Systems Frontiers, 2021, vol. 23, issue 2, No 5, 317-327

Abstract: Abstract Bitcoin is one of the most popular cryptocurrency in the world. Miners in the Bitcoin network reduce their risks through participating in mining pool. Existing mining pool systems do not consider the cost and strategy of miners. In this paper, we study two mining models: public cost model and private cost model. For the public cost model, we design an incentive mechanism, called Mining game, using a Stackelberg game. We show that Mining game is individually rational, profitable, and has the unique Stackelberg Equilibrium. For the private cost model, we formulate the Budget Feasible Reward Optimization (BFRO) problem to maximize the reward function under the budget constraint, and design a budget feasible reverse auction to solve the BFRO problem, which is computationally efficient, individually rational, truthful, budget feasible, and constant approximate. Through extensive simulations, we evaluate the performance and validate the theoretical properties of our incentive mechanisms.

Keywords: Bitcoin; Mining pool; Incentive mechanism; Nash equilibrium; Auction (search for similar items in EconPapers)
Date: 2021
References: View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10796-020-10019-2

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