On the instability of Bitcoin without the block reward

Miles Carlsten, Harry Kalodner, Arvind Narayanan, S. Matthew Weinberg

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

90 Scopus citations

Abstract

Bitcoin provides two incentives for miners: block rewards and transaction fees. The former accounts for the vast majority of miner revenues at the beginning of the system, but it is expected to transition to the latter as the block rewards dwindle. There has been an implicit belief that whether miners are paid by block rewards or transaction fees does not affect the security of the block chain. We show that this is not the case. Our key insight is that with only transaction fees, the variance of the block reward is very high due to the exponentially distributed block arrival time, and it becomes attractive to fork a "wealthy" block to "steal" the rewards therein. We show that this results in an equilibrium with undesirable properties for Bitcoin's security and performance, and even non-equilibria in some circumstances. We also revisit selfish mining and show that it can be made profitable for a miner with an arbitrarily low hash power share, and who is arbitrarily poorly connected within the network. Our results are derived from theoretical analysis and confirmed by a new Bitcoin mining simulator that may be of independent interest. We discuss the troubling implications of our results for Bitcoin's future security and draw lessons for the design of new cryptocurrencies.

Original languageEnglish (US)
Title of host publicationCCS 2016 - Proceedings of the 2016 ACM SIGSAC Conference on Computer and Communications Security
PublisherAssociation for Computing Machinery
Pages154-167
Number of pages14
ISBN (Electronic)9781450341394
DOIs
StatePublished - Oct 24 2016
Event23rd ACM Conference on Computer and Communications Security, CCS 2016 - Vienna, Austria
Duration: Oct 24 2016Oct 28 2016

Publication series

NameProceedings of the ACM Conference on Computer and Communications Security
Volume24-28-October-2016
ISSN (Print)1543-7221

Other

Other23rd ACM Conference on Computer and Communications Security, CCS 2016
CountryAustria
CityVienna
Period10/24/1610/28/16

All Science Journal Classification (ASJC) codes

  • Software
  • Computer Networks and Communications

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