A Mechanism Design Approach to Blockchain Protocols

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On January 24-25, 2019 the Center of Mathematical Sciences hosted a conference on distributed-ledger (blockchain) technology. The conference was intended to cover a broad range of topics, from abstract mathematical aspects (cryptography, game theory, graph theory, theoretical computer science) to concrete applications (in accounting, government, economics, finance, management, medicine).

Speaker: Hong Wan, NCSU

Title: A Mechanism Design Approach to Blockchain Protocols

Abstract: Blockchain-based systems such as cryptocurrencies are achieving widespread usage, with a market capitalization of $150B as of September 2017. However, the most prominent platforms that account for over 70% of this market – Bitcoin & Ethereum – are exhibiting increasingly lower levels of decentralization. This poses the problem of concentrating levers of consensus to a select group of agents in the system. Essentially, centralization in a system designed to be decentralized can lead to security threats such as 51% attack. In this paper, we demonstrate the use of game theory and mechanism design to find ways of solving the problem of centralization in blockchain systems. Since decentralization vs centralization is related to non-cooperative vs. cooperative behavior, using simple models based on non-cooperative and cooperative game theory we propose a way of designing payoffs in order to disincentivize certain exhibited behaviors and incentivize desired behaviors of miners or validators in such systems. Index Terms—blockchain, decentralization, game theory, centralization, mechanism design.

Joint with Abhishek Ray, Mario Ventresca, Hong Wan.



On January 24-25, 2019 the Center of Mathematical Sciences hosted a conference on distributed-ledger (blockchain) technology. The conference was intended to cover a broad range of topics, from abstract mathematical aspects (cryptography, game theory, graph theory, theoretical computer science) to concrete applications (in accounting, government, economics, finance, management, medicine).

Speaker: Hong Wan, NCSU

Title: A Mechanism Design Approach to Blockchain Protocols

Abstract: Blockchain-based systems such as cryptocurrencies are achieving widespread usage, with a market capitalization of $150B as of September 2017. However, the most prominent platforms that account for over 70% of this market – Bitcoin & Ethereum – are exhibiting increasingly lower levels of decentralization. This poses the problem of concentrating levers of consensus to a select group of agents in the system. Essentially, centralization in a system designed to be decentralized can lead to security threats such as 51% attack. In this paper, we demonstrate the use of game theory and mechanism design to find ways of solving the problem of centralization in blockchain systems. Since decentralization vs centralization is related to non-cooperative vs. cooperative behavior, using simple models based on non-cooperative and cooperative game theory we propose a way of designing payoffs in order to disincentivize certain exhibited behaviors and incentivize desired behaviors of miners or validators in such systems. Index Terms—blockchain, decentralization, game theory, centralization, mechanism design.

Joint with Abhishek Ray, Mario Ventresca, Hong Wan.

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