Three variations of Heads or Tails Game for Bitcoin

TL;DR

This paper introduces three simple Heads or Tails game variants to analyze Bitcoin protocol issues, including forks, vulnerability to attacks, and potential fixes, providing clear thresholds and insights without complex calculations.

Contribution

It presents novel, simplified models for understanding Bitcoin's fork persistence, attack vulnerabilities, and solutions to difficulty adjustment issues, enhancing clarity and accessibility.

Findings

Threshold for honest miner persistence on forks identified

Vulnerability of difficulty adjustment to deviant strategies explained

Unbiased variant shows full rectification of difficulty adjustment issues

Abstract

We present three very simple variants of the classic Heads or Tails game using chips, each of which contributes to our understanding of the Bitcoin protocol. The first variant addresses the issue of temporary Bitcoin forks, which occur when two miners discover blocks simultaneously. We determine the threshold at which an honest but temporarily ``Byzantine'' miner persists in mining on their fork to save his orphaned blocks. The second variant of Heads or Tails game is biased in favor of the player and helps to explain why the difficulty adjustment formula is vulnerable to attacks of Nakamoto's consensus. We derive directly and in a simple way, without relying on a Markov decision solver as was the case until now, the threshold beyond which a miner without connectivity finds it advantageous to adopt a deviant mining strategy on Bitcoin. The third variant of Heads or Tails game is unbiased and demonstrates that this issue in the Difficulty Adjustment formula can be fully rectified. Our results are in agreement with the existing literature that we clarify both qualitatively and quantitatively using very simple models and scripts that are easy to implement.