Speaker: Yoad Lewenberg, Hebrew University
Date: Monday, 3 November 2014
Time: 4pm
Place: Rothberg 220

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"Bitcoin Mining Pools: A Game Theoretic Analysis"

Abstract:

Bitcoin is an innovative decentralized cryptocurrency whose core
security relies on a "proof of work" procedure, which requires
network participants to repeatedly compute hashes on inputs from a
large search space. Finding one of the rare inputs that generates an
extremely low hash value is considered a successful attempt, allowing
miners to approve new transactions and, in return, to collect rewards
in bitcoins.  This reward allocation, which provides the incentive for
miners to participate, is a random process with a large
variance. Miners who desire a steady income thus often participate in
mining pools, that divide among their members the earned monetary
rewards, and reduce this variance. Mining pools are slightly better at
coordinating participants due to lower latency communication, a fact
which implies that they manage to collect slightly higher rewards.

We examine the dynamics of pooled mining and the rewards that pools
manage to collect, and use cooperative game theoretic tools to analyze
how pool members may share these rewards. We show that for some
network parameters, especially under high transaction loads, it is
difficult or even impossible to distribute the rewards in a stable
way: some participants are always incentivized to switch between
pools.


Joint work with Aviv Zohar and Jeffrey S. Rosenschein

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