The Impact of Uncle Rewards on Selfish Mining in Ethereum

TL;DR

This paper investigates how uncle rewards in Ethereum influence the profitability of selfish mining and blockchain security, using simulations to quantify these effects and discussing recent protocol proposals.

Contribution

It provides a quantitative analysis of uncle rewards' impact on selfish mining profitability and blockchain security in Ethereum through Monte Carlo simulations.

Findings

Uncle rewards can increase the profitability of selfish mining.

Uncle referencing reduces the risk of miners gaining no rewards.

Simulation results highlight the security implications of uncle rewards.

Abstract

Many of today's crypto currencies use blockchains as decentralized ledgers and secure them with proof of work. In case of a fork of the chain, Bitcoin's rule for achieving consensus is selecting the longest chain and discarding the other chain as stale. It has been demonstrated that this consensus rule has a weakness against selfish mining in which the selfish miner exploits the variance in block generation by partially withholding blocks. In Ethereum, however, under certain conditions stale blocks don't have to be discarded but can be referenced from the main chain as uncle blocks yielding a partial reward. This concept limits the impact of network delays on the expected revenue for miners. But the concept also reduces the risk for a selfish miner to gain no rewards from withholding a freshly minted block. This paper uses a Monte Carlo simulation to quantify the effect of uncle blocks both to the profitability of selfish mining and the blockchain's security in Ethereum (ETH). A brief outlook about a recent Ethereum Classic (ETC) improvement proposal that weighs uncle blocks during the selection of the main chain will be given.