From Griefing to Stability in Blockchain Mining Economies

Yun Kuen Cheung, Stefanos Leonardos, Georgios Piliouras and Shyam Sridhar

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Abstract: We study a game-theoretic model of blockchain mining economies and show that griefing, a practice according to which participants harm other participants at some lesser cost to themselves, is a prevalent threat at its Nash equilibria. The proof relies on a generalization of evolutionary stability to non-homogeneous populations via griefing factors (ratios that measure network losses relative to deviator's own losses) which leads to a formal theoretical argument for the dissipation of resources, consolidation of power and high entry barriers that are currently observed in practice. A critical assumption in this type of analysis is that miners' decisions have significant influence in aggregate network outcomes (such as network hashrate). However, as networks grow larger, the miner's interaction more closely resembles a distributed production economy or Fisher market and its stability properties change. In this case, we derive a proportional response (PR) update protocol which converges to market equilibria at which griefing is irrelevant. Convergence holds for a wide range of miners risk profiles and various degrees of resource mobility between blockchains with different mining technologies. Our empirical findings in a case study with four mineable cryptocurrencies suggest that risk diversification, restricted mobility of resources (as enforced by different mining technologies) and network growth, all are contributing factors to the stability of the inherently volatile blockchain ecosystem.

Date: 2021-06
New Economics Papers: this item is included in nep-gth, nep-net and nep-pay
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