Role of Game-Theory and Fairness in Designing Blockchain Protocols

Abstract

Blockchains lie at the heart of Bitcoin and other cryptocurrencies that have shown great promise to revolutionize finance and commerce. The novel applications of blockchain technology are derived from the unique combination of properties of blockchains: immutability, incorruptibility, consensus, transparency, decentralization and ordering. However, they face technical challenges when it comes to scaling to support greater demand while maintaining their desirable security properties. In an exciting line of recent work, many researchers have proposed various scalable blockchain protocols that demonstrate the potential to solve these challenges. However, many of these protocols come with the assumptions of honest majority and symmetric network access which may not accurately reflect the real world where the participants may be self-interested or rational. In this thesis, we work towards analysing blockchain protocols in settings with rational participants and use game-theory to predict their behaviour. For the first time in literature, we study blockchain protocols in a setting with asymmetric network access and highlight the role of network fairness in ensuring the security of a blockchain protocol. We demonstrate via simulations, the effect of lack of network fairness in Bitcoin and the equilibrium behaviour of the participants which results in loss of both security and performance of the protocol. In order to further highlight the importance of network fairness in designing scalable blockchain protocols, we showcase incentive-driven deviations in the OHIE blockchain protocol proposed recently and the loss of security caused by these deviations. We then study a class of blockchain protocols designed by layering two distinct types of consensus protocols and determine the parameters required to ensure game-theoretic soundness and security. We also formally study the reward schemes employed by Proof-of-Work-based blockchain protocols and showcase the lack of game-theoretic soundness. Towards this, we also propose a class of game-theoretically sound reward schemes. Finally, we extend our work by developing a model for layered-blockchain protocols and present a game-theoretic model for analyzing the security of layered-blockchain protocols. Therefore, in this thesis we present novel work that aims to guide the development of fair and game-theoretically sound blockchain protocols.