The Miner's Dilemma

TL;DR

This paper models the strategic interactions among Bitcoin mining pools, revealing that pools face a dilemma between attacking each other to gain more rewards or cooperating to maintain profitability, with implications for system security.

Contribution

It introduces a game-theoretic model of pool attacks, showing the existence of a miner's dilemma and analyzing equilibrium behaviors in open mining pools.

Findings

No-pool-attacks is not a Nash equilibrium.

Pools tend to attack each other in equilibrium, leading to a tragedy of the commons.

Active Bitcoin pools currently avoid attacking, maintaining system stability.

Abstract

An open distributed system can be secured by requiring participants to present proof of work and rewarding them for participation. The Bitcoin digital currency introduced this mechanism, which is adopted by almost all contemporary digital currencies and related services. A natural process leads participants of such systems to form pools, where members aggregate their power and share the rewards. Experience with Bitcoin shows that the largest pools are often open, allowing anyone to join. It has long been known that a member can sabotage an open pool by seemingly joining it but never sharing its proofs of work. The pool shares its revenue with the attacker, and so each of its participants earns less. We define and analyze a game where pools use some of their participants to infiltrate other pools and perform such an attack. With any number of pools, no-pool-attacks is not a Nash equilibrium. With two pools, or any number of identical pools, there exists an equilibrium that constitutes a tragedy of the commons where the pools attack one another and all earn less than they would have if none had attacked. For two pools, the decision whether or not to attack is the miner's dilemma, an instance of the iterative prisoner's dilemma. The game is played daily by the active Bitcoin pools, which apparently choose not to attack. If this balance breaks, the revenue of open pools might diminish, making them unattractive to participants.