On Fairness Concerns in the Blockchain Ecosystem

TL;DR

This paper investigates fairness issues in blockchain transaction ordering and governance, revealing potential biases and concentration of voting power that could impact decentralization and security.

Contribution

It provides an empirical audit of Bitcoin, Ethereum, and Compound, highlighting fairness concerns in transaction prioritization and governance token distribution.

Findings

Miner transaction selection shows biases towards higher-fee transactions.

Voting power in governance protocols is often concentrated among few participants.

Fairness and decentralization are challenged by current practices in blockchain ecosystems.

Abstract

Blockchains revolutionized centralized sectors like banking and finance by promoting decentralization and transparency. In a blockchain, information is transmitted through transactions issued by participants or applications. Miners crucially select, order, and validate pending transactions for block inclusion, prioritizing those with higher incentives or fees. The order in which transactions are included can impact the blockchain final state. Moreover, applications running on top of a blockchain often rely on governance protocols to decentralize the decision-making power to make changes to their core functionality. These changes can affect how participants interact with these applications. Since one token equals one vote, participants holding multiple tokens have a higher voting power to support or reject the proposed changes. The extent to which this voting power is distributed is questionable and if highly concentrated among a few holders can lead to governance attacks. In this thesis, we audit the Bitcoin and Ethereum blockchains to investigate the norms followed by miners in determining the transaction prioritization. We also audit decentralized governance protocols such as Compound to evaluate whether the voting power is fairly distributed among the participants. Our findings have significant implications for future developments of blockchains and decentralized applications.