Block withholding resilience

TL;DR

This paper proposes a modification to Bitcoin's difficulty adjustment algorithm that makes honest mining strategies optimal, even when considering orphan blocks and their rewards, enhancing protocol resilience.

Contribution

It introduces a difficulty adjustment modification accounting for orphan blocks, ensuring honest mining is the best strategy regardless of orphan block rewards.

Findings

Honest mining becomes the optimal strategy with the new adjustment.

The modification is effective even when orphan blocks have smaller rewards.

Results are independent of attacker connectivity.

Abstract

It has been known for some time that the Nakamoto consensus as implemented in the Bitcoin protocol is not totally aligned with the individual interests of the participants. More precisely, it has been shown that block withholding mining strategies can exploit the difficulty adjustment algorithm of the protocol and obtain an unfair advantage. However, we show that a modification of the difficulty adjustment formula taking into account orphan blocks makes honest mining the only optimal strategy. Surprinsingly, this is still true when orphan blocks are rewarded with an amount smaller to the official block reward. This gives an incentive to signal orphan blocks. The results are independent of the connectivity of the attacker.