Approach to Alleviate Wealth Compounding in Proof-of-Stake Cryptocurrencies

TL;DR

This paper proposes the FRD reward mechanism for proof-of-stake cryptocurrencies to reduce wealth concentration by distributing small rewards to all nodes, promoting fairness.

Contribution

It introduces a novel reward distribution method that enhances fairness in PoS protocols, supported by theoretical analysis using the Bagchi-Pal urn model.

Findings

The FRD mechanism reduces wealth inequality in PoS systems.

Theoretical proof shows improved fairness with the new reward scheme.

Simulation results confirm the effectiveness of the proposed method.

Abstract

Due to its minimal energy requirement the PoS consensus protocol has become an attractive alternative to PoW in modern cryptocurrencies. In this protocol the chance of being selected as a block proposer in each round is proportional to the current stake of any node. Thus, nodes with higher stakes will achieve more block rewards, resulting in the so-called rich-getting-richer problem. In this paper, we introduce a new block reward mechanism called the FRD (Fair Reward Distribution) mechanism, in which for each block produced, in addition to a major reward given to the block proposer, a small reward is given to all other nodes. We prove that this reward mechanism makes the PoS protocol fairer in terms of concentration of wealth by developing on the Bagchi-Pal urn model.