Greedy but Cautious: Conditions for Miner Convergence to Resource Allocation Equilibrium

TL;DR

This paper analyzes how resource allocation among competing blockchains reaches a stable equilibrium driven by reward value, showing that cautious behavior among miners ensures convergence, with practical applications in security and pricing.

Contribution

It establishes conditions for resource allocation equilibrium between blockchains sharing PoW, proving that cautious miner behavior guarantees convergence and exploring practical implications.

Findings

Resource allocation reaches a stable equilibrium driven by reward fiat value.

Cautious miner behavior ensures convergence to equilibrium.

Overly greedy behavior causes oscillations in resource distribution.

Abstract

All public blockchains are secured by a proof of opportunity cost among block producers. For example, the security offered by proof-of-work (PoW) systems, like Bitcoin, is due to spent computation; it is work precisely because it cannot be performed for free. In general, more resources provably lost in producing blocks yields more security for the blockchain. When two blockchains share the same mechanism for providing opportunity cost, as is the case when they share the same PoW algorithm, the two chains compete for resources from block producers. Indeed, if there exists a liquid market between resource types, then theoretically all blockchains will compete for resources. In this paper, we show that there exists a resource allocation equilibrium between any two blockchains, which is essentially driven by the fiat value of reward that each chain offers in return for providing security. We go on to prove that this equilibrium is singular and always achieved provided that block producers behave in a greedy, but cautious fashion. The opposite is true when they are overly greedy: resource allocation oscillates in extremes between the two chains. We show that these results hold both in practice and in a block generation simulation. Finally, we demonstrate several applications of this theory including a trustless price-ratio oracle, increased security for blockchains whose coins have lower fiat value, and a quantification of cost to allocating resources away from the equilibrium.