The Bitcoin cryptocurrency records its transactions in a public log called the blockchain. Its security rests critically on the distributed protocol that maintains the blockchain, run by participants called miners. Conventional wisdom asserts that the mining protocol is incentive-compatible and secure against colluding minority groups, that is, it incentivizes miners to follow the protocol as prescribed.
We show that the Bitcoin mining protocol is not incentive-compatible. We present an attack with which colluding miners' revenue is larger than their fair share. The attack can have significant consequences for Bitcoin: Rational miners will prefer to join the attackers, and the colluding group will increase in size until it becomes a majority. At this point, the Bitcoin system ceases to be a decentralized currency.
Unless certain assumptions are made, selfish mining may be feasible for any coalition size of colluding miners. We propose a practical modification to the Bitcoin protocol that protects Bitcoin in the general case. It prohibits selfish mining by a coalition that command less than 1/4 of the resources. This threshold is lower than the wrongly assumed 1/2 bound, but better than the current reality where a coalition of any size can compromise the system.
Bitcoin15 is a cryptocurrency that has recently emerged as a popular medium of exchange, with a rich and extensive ecosystem. The Bitcoin network runs at over 42 × 1018 FLOPS,4 with a total market capitalization around 12bn US Dollars as of January 2014.5 Central to Bitcoin's operation is a global, public log, called the blockchain, that records all transactions between Bitcoin clients. The security of the blockchain is established by a chain of cryptographic puzzles, solved by a loosely-organized network of participants called miners. Each miner that successfully solves a cryptopuzzle is allowed to record a set of transactions, and to collect a reward in Bitcoins. The more mining power (resources) a miner applies, the better are its chances to solve the puzzle first. This reward structure provides an incentive for miners to contribute their resources to the system, and is essential to the currency's decentralized nature.
The Bitcoin protocol requires a majority of the miners to be honest; that is, follow the Bitcoin protocol as prescribed. By construction, if a set of colluding miners comes to command a majority of the mining power in the network, the currency stops being decentralized and becomes controlled by the colluding group. Such a group can, for example, prohibit certain transactions, or all of them. It is, therefore, critical that the protocol be designed such that miners have no incentive to form such large colluding groups.
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