TY - GEN
T1 - Compounding of Wealth in Proof-of-Stake Cryptocurrencies
AU - Fanti, Giulia
AU - Kogan, Leonid
AU - Oh, Sewoong
AU - Ruan, Kathleen
AU - Viswanath, Pramod
AU - Wang, Gerui
N1 - Publisher Copyright:
© 2019, International Financial Cryptography Association.
PY - 2019
Y1 - 2019
N2 - 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.
AB - 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.
KW - Cryptocurrencies
KW - Proof-of-stake
KW - Random processes
UR - http://www.scopus.com/inward/record.url?scp=85075551523&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85075551523&partnerID=8YFLogxK
U2 - 10.1007/978-3-030-32101-7_3
DO - 10.1007/978-3-030-32101-7_3
M3 - Conference contribution
AN - SCOPUS:85075551523
SN - 9783030321000
T3 - Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
SP - 42
EP - 61
BT - Financial Cryptography and Data Security - 23rd International Conference, FC 2019, Revised Selected Papers
A2 - Goldberg, Ian
A2 - Moore, Tyler
PB - Springer
T2 - 23rd International Conference on Financial Cryptography and Data Security, FC 2019
Y2 - 18 February 2019 through 22 February 2019
ER -