An Economic Model of Consensus on Distributed Ledgers

Hanna Halaburda, Zhiguo He () and Jiasun Li

No 29515, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In recent years, the designs of many new blockchain applications have been inspired by the Byzantine fault tolerance (BFT) problem. While traditional BFT protocols assume that most system nodes are honest (in that they follow the protocol), we recognize that blockchains are deployed in environments where nodes are subject to strategic incentives. This paper develops an economic framework for analyzing such cases. Specifically, we assume that 1) non-Byzantine nodes are rational, so we explicitly study their incentives when participating in a BFT consensus process; 2) non-Byzantine nodes are ambiguity averse, and specifically, Knightian uncertain about Byzantine actions; and 3) decisions/inferences are all based on local information. We thus obtain a consensus game with preplay communications. We characterize all equilibria, some of which feature rational leaders withholding messages from some nodes in order to achieve consensus. These findings enrich those from traditional BFT algorithms, where an honest leader always sends messages to all nodes. We also study how the progress of communication technology (i.e., potential message losses) affects the equilibrium consensus outcome.

JEL-codes: D02 D82 D85 G14 G29 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-gth and nep-ict
Note: AP CF LE TWP
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Citations: View citations in EconPapers (6)

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Working Paper: An Economic Model of Consensus on Distributed Ledgers (2023)
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