Compounding of Wealth in Proof-of-Stake Cryptocurrencies

Giulia Fanti, Leonid Kogan, Sewoong Oh, Kathleen Ruan, Pramod Viswanath, Gerui Wang

Research output: Chapter in Book/Report/Conference proceedingConference contribution

17 Scopus citations

Abstract

Proof-of-stake (PoS) is a promising approach for designing efficient blockchains, where block proposers are randomly chosen with probability proportional to their stake. A primary concern in PoS systems is the “rich getting richer” effect, whereby wealthier nodes are more likely to get elected, and hence reap the block reward, making them even wealthier. In this paper, we introduce the notion of equitability, which quantifies how much a proposer can amplify her stake compared to her initial investment. Even with everyone following protocol (i.e., honest behavior), we show that existing methods of allocating block rewards lead to poor equitability, as does initializing systems with small stake pools and/or large rewards relative to the stake pool. We identify a geometric reward function, which we prove is maximally equitable over all choices of reward functions under honest behavior and bound the deviation for strategic actions; the proofs involve the study of optimization problems and stochastic dominances of Pólya urn processes. These results allow us to provide a systematic framework to choose the parameters of a practical incentive system for PoS cryptocurrencies.

Original languageEnglish (US)
Title of host publicationFinancial Cryptography and Data Security - 23rd International Conference, FC 2019, Revised Selected Papers
EditorsIan Goldberg, Tyler Moore
PublisherSpringer
Pages42-61
Number of pages20
ISBN (Print)9783030321000
DOIs
StatePublished - 2019
Externally publishedYes
Event23rd International Conference on Financial Cryptography and Data Security, FC 2019 - St. Kitts, Saint Kitts and Nevis
Duration: Feb 18 2019Feb 22 2019

Publication series

NameLecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume11598 LNCS
ISSN (Print)0302-9743
ISSN (Electronic)1611-3349

Conference

Conference23rd International Conference on Financial Cryptography and Data Security, FC 2019
Country/TerritorySaint Kitts and Nevis
CitySt. Kitts
Period2/18/192/22/19

All Science Journal Classification (ASJC) codes

  • Theoretical Computer Science
  • Computer Science(all)

Keywords

  • Cryptocurrencies
  • Proof-of-stake
  • Random processes

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